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Concept of ‘Concept Stocks’

by Altais on March 26th, 2013

The past few months have not been great for concept stocks, to put it mildly.

and so on… the list is actually quite long…

Why this fascination for concept stocks, even for big investors? Humungous returns? Challenge of being offbeat/ first to discover? Or the fact that they earned their money investing in such concept stocks earlier?

After all, these were also concept stocks to begin with….

or for shorter time frame, Pantaloon Retail and Bharti Airtel…

Of course, with hindsight bias, now we can think of the differences between the two set of companies:

- Promoter Integrity

- Balance Sheet Strength

But the whole seductive charm of concept stocks lie in the future – future gonna be better, this is just the beginning….

After all, prediction is very difficult, especially about the future

But of course, with a venture capital mindset, one can still justify investing in concept stocks.

Let’s take the above set. We invest Rs. 100 in each of the above stocks and the above returns materialize over 8 years i.e. we lose 80% of capital in 2 stocks, 75% in third, 50% in fourth, but have 30 bagger in one stock and 16 bagger in another. This will yield Rs. 4715 on an investment of Rs. 600 over 8 years – CAGR of 29%.

Not bad at all, but perhaps one could have achieved similar/ slightly lower returns in a simpler fashion. Further, this is very dependent on getting the two home runs. Though one can argue about mid course correction and taking money from weeds to flowers, but isn’t it better to be a Dravid than a Sewhag?!

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