The biggest money is made when you have a lollapalooza effect – a strong trend in increasing business momentum and stock price momentum.
At times the trend can continue for years. The real multibaggers come from those who can ride such stocks.
Page, Eicher, Symphony, Divis, Aarti, Atul, Pidilite, Asian Paints and many such companies.
It usually starts with increasing earnings and low valuations. Then the business continues doing well and the growth keeps coming. Others get attracted to the growth and low valuation and start buying. Increased buying increases the liquidity and attracts the big boys. Then they start getting in and the price momentum accelerates. And the company keeps defying the odds and posting good results and consistent growth. The PE keep re-rating upwards. The valuation after a point goes out of whack. Some investors book out.
You need to keep abreast of the developments in the company. There will come a time when the growth will slow down. Try to assess if it is a short term blip or a medium to long term slowdown. That is the cue to get out.
Typically, a company is able to grow well for a period of 3-5 years after which the growth stops or slows. If the quality of the company is good, investors stick around and the price consolidates in a range without falling off (example, PI Ind in the last 2-3 years, before the growth again picked up).
To understand and ride such big moves, you need to have an understanding of both fundamentals and technicals. One without the other results in a sub-optimal outcome.
Never get scared of rising prices. That’s the only way you make money!!