In the Indian share market, Stocks with a market value of less than 5000 crores are called microcap stocks.

How do you select micro-cap stocks?

1. Is the industry growing at a minimum of 5-6%?
2. It should have a MOAT.
3. Are there any red flags, especially promoter red flags?
   1. Why did the IPO come? Is it for OFS?
   2. Promotors reducing stake after IPO?
4. It should suit your investment style.
   1. Are you a risk taker or a conservative investor?

Summary

• Microcap investing is very rewarding.
• There is very little information available on this kind of stock.
• Use the four-point framework.
• Direct exposure to microcaps is important.
• Understand the shareholding pattern of the promoters.
• How FII and DIIs behave with the stock.

source: https://youtu.be/Y7DwDjYrmXU

How to identify multi-bagger stocks

Concept

• Multibagger stocks are the ones that can go 2x-10x of their current market value.
• This translates to many people not believing in the potential of the stock now but with every quarterly result, there is a high chance that it will make people flip from non-believers to believers in the stock.

Criteria

1. It should belong to a high-growth industry in India.
2. The stock should be going through a short-term problem.
   • Due to this majority of the people do not trust the stock.
   • If a stock has majority shareholders are retail investors, it is usually not a good stock to buy.
3. Fundamental analysis should be strong.
4. The risk and reward equations should be favorable.
   • Probability of profit > Probability of losing the entire capital
5. There should not be any major red flags.

Strategy

• Invest 5-10% of your portfolio in these types of stocks. No matter how lucrative the deal may look like. So that if it goes to 0 also it should not bother you.
• Hedge the shares when the stock starts giving some profits to increase the margin of safety.

source: https://youtu.be/nICnH4oFRSE

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