“Hidden Gems” is a widely used term in the stock market. You must have heard this term if you ever worked in the stock market or listen to any stock market gurus. In case you don’t know
Hidden Gems in the stock market are considered as the stocks or share which are undiscovered by many investors but have the potential to multiply investment in no time.
But do such stocks really exist? Well, there might be some shares floating between thousands of shares listed on the stock exchanges but personally, I believe that, most of the investors make big losses in the effort of finding the hidden gems.
Where People Look For Hidden Gem Stocks?
Hidden Gem Stocks are mostly from the micro or small caps i.e. shares with a market capitalization between 100 – 200 crores and sometimes even less than this range. Such stocks are not well known to everyone and trades in range-bound unless they witness huge buying by the promoter, financial institution, or operators.
Some investor (mostly newcomers) look at the stock price and look for stocks which are trading in single or double-digit. They see it as a minimum risk strategy with unlimited profits. However, they all fail almost all the time unless they are super lucky.
It doesn’t mean, there isn’t any share in the stock market which could shine as a hidden gem in the future. There are shares in the market that are available at a very cheap price but exhibiting promising financial and fundamentals. But the question is, are we intelligent enough with the company’s genuine information to find such listed stocks? Most investors listen to internet gurus and so-called investors who want you to be rich on the news channel or internet (like YouTube) when it comes to picking hidden gems which is very dangerous.
Why I Don’t Believe In Hidden Gems?
I don’t believe in hidden gem stocks because as per my view, finding hidden gems in the stock market is not everyone’s cup of tea. Even if you succeed in finding such stocks, there is no guarantee that they will move – there is no timeframe and you might have to stick with it for several years. Also, I believe hidden gems can move only if it catches any big financial institution’s or operator’s eye.
Certainly, I don’t trust when I hear any hidden gem stock ideas from news channels or the internet because nobody would share the stocks which can surely multiply investment 10 or 100 times (unless they have invested in it for a long time and it is not moving). Most of the time such stocks are in control of big operators and they promote these stocks to gain more buyers and they sell once they reach towards their price. Retail investor hardly finds or make any profit with such stocks.
These types of stocks don’t follow market direction and can go either direction at any point in time giving you no time to take any decision. People or retail investors buy such stocks and block their money forever or book losses eventually.
This is 100% my view on hidden gems and you might have some conflict. However, I would still advise everyone to stay away from internet gurus or paid new channels who encourage and share the hidden gem opportunities in the stock market. Nobody will care to share the hidden gem if they find one and don’t waste your time in searching one after learning the steps from investment gurus. It will only divert your attention from choosing quality stocks and give you losses in the long run.
How To Choose Profitable Hidden Gems?
Enough of the negative feedback on the hidden gems. Let’s discuss, how can we find the profitable hidden gems in any stock market. Remember, when I say profitable hidden gems, I don’t mean the criteria which I mentioned earlier in this article. My definition of hidden gem is different and it’s not hidden from anyone. Strange isn’t it?
Steps to find profitable Hidden Gem Stocks?
- Choose stocks which are NOT hidden – You heard it right! Stocks that have the potential to go up are hardly hidden. Stocks need buyers to go up therefore the stocks you choose should be a well-known company.
- Research company fundamental, management, and past performance – It is important to understand the company’s past performance, fundamentals, and their future plans. Don’t forget, companies with great future plans and super past performance have more probability to multiply your investment.
- Compare with peer companies – It is very important to know, how the company performing as compared to their peers. This helps to choose the right company in any sector also it shows whether the price is right to buy or it is overpriced already?
- Don’t rush to buy at higher levels – It is hard for many people to wait for the right price when they decide to buy any stocks It happened with me many times when I was new and I learned my lesson. When you buy at higher levels, it becomes very difficult to exit with profit -at least in the short term. Therefore, know your buying range and have patience till your selected stocks reach to that level.
- Diversify your portfolio – Well, this is not a new strategy and you must have already heard before. Choose stocks from at least 3-5 sectors and make sure the stocks you are choosing in each section are best as compared to their peers.
- Plan your EXIT strategy – This is not the step to find the hidden gem but very essential to know. Even the stock with the best fundamental and higher future perspective doesn’t move as per our expectations. Therefore, it is very important to know – when to sell and book profit or loss.
Personally, I think the people with intent to become super-rich overnight from the stock market fell in hidden gem trape. Stocks market makes money but at the same time takes no time to drain all your investment. Therefore, don’t be greedy and focus too much on finding stocks that could multiply your money 10 or 20 times in a year. Trust me, most of us can’t even manage to stay invested in stocks once it gives a 30 – 40% profit. Therefore choose promising stocks and get out with reasonable profits and invest in other stocks.
I hope you enjoyed reading this article. You may also enjoy my previous article on Intraday Trading and Why I don’t go Too Long with my investment. Do let me know your story with investment in hidden gem stock and how was your journey in finding one? I wish you all the best for your future investments.