Identifying the next Big Trend


  • The theoretical definition of a bull market is a time when the index convincingly crosses its previous high by more than 10% and keeps making new highs thereafter
  • The bull market always happens in stocks that were not the leaders in any of the previously concluded bull markets and would normally be a 'new sector'
  • Cement led 1992 bull run; IT led 2000 bull run; Infrastructure and Real Estate led 2008 bull run
  • One way of identifying the trend will be to closely watch the revenue growth of most of the companies in a specific sector
  • An investor looking at new trends should try and estimate the market size in relation to the leading player in the segment
  • When the sector tops out, the market cap of the leader will be worth a lot closer to the size of the sector
  • Most companies that start a new trend are incubated by first generation entrepreneurs
  • Established promoters are not the best place to look for a new trend because a new trend generally starts with the new blood
  • An investor should focus on the sector where most of the stocks have started to hit new all time highs
  • Stocks that start hitting new highs before the indices are more likely to extend their winning run in the next bull market
  • Most of the new bull market stocks will be sector leaders having small market cap.
  • A new trend generally starts in a sector where most of the companies will be smaller market cap companies
  • Leading bull market stocks get expensive within the first twelve to eighteen months of price movement based on trailing earnings but would still be cheap on forward earnings
  • The actual threat to a bull market stock is not excessive valuation but slowing growth 
  • An illiquid stock suggests that investors are willing to take a long term view without undergoing quick buy and sell decisions, it also suggests that the stock is unpopular and is not actively followed by the analysts and research houses of Dalal Street.
  • For a sector to become a leader of the bull market it has to have little barriers to entry
  • New companies with questionable management integrity is the necessary catalyst that causes a bull market bubble to burst
  • If there are ten IPOs in a bull market than maybe nine of them will be bad but if there are five IPOs in a bear market than one of them could be a potential multibagger
  • A company that has worked with a private equity team before coming for an IPO is generally assumed to have modelled its business well.

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