Back in 1990, Eicher Motors was a largely unknown manufacturer of motorcycles and commercial vehicles Company. If somebody had invested just Rs. 10,000 in Eicher Motors in 1990, today it would worth more than Rs. 2 crores. Same goes for Infosys which could’ve returned nearly Rs. 3 crore if you invested Rs. 10,000 in 1993. Who would’ve thought that such mid-cap companies would turn out to be large-cap companies? – Well, don’t sweat about it because it is very hard to foresee such a thing back then.
But, not all mid-cap companies turned out to be large-cap companies. In fact, if you’ve stayed invested in the mid-cap or small-cap stocks through 2018, you would’ve realized that Nifty was up by 4 percent however the mid-cap was down by 16 percent and small-cap was down by 26 percent.
When you narrow your research, you will realize that there are some mid-cap stocks that plunged even by 50 percent. So, things can go either way! Besides, market volatility is highly unpredictable. Only a few have the talent to predict the future direction of the stock market. But, even there are times when they are wrong too.
The real question is, “How to reconcile this contrariety between the returns potential and risk associated with mid-cap stocks?”
How to Monitor Mid-Cap Stocks?
- Check the Past Performances: Past performances may not guarantee future growth but is recognized as the first step in investing world. You need to be aware of what you’re getting yourself into. It is your best bet against the uncertainty surrounding the mid-cap stocks. A consistent track record will tell you that the company has been performing well in the last 4-5 years and the same can be expected in the future. But, if the company hasn’t performed well in the past then what makes you think it would do any better in the future.
- Check for Vulnerability: Usually, the mid-cap stocks are vulnerable to the interest rate movements and trend shifting in global demands. So, it would be recommending checking for such risk factors and key economic indicators that may or may not affect the mid-cap stocks that you’re invested in.
- Stop Comparing with Others: A very common habit of us investors is to compare one with another. There is no point of comparing mid-cap stocks with large-cap or blue-chip stocks, or with the Nifty or Sensex, etc. There is a reason you are invested in mid-cap stocks, not in large-cap, small-cap or blue-chip stocks.
- Liquidity Matters: When you’re in mid-cap stocks it is important to consider liquidity. It would be good if you can easily exit the stock that you’re invested in, without too much price damage. Unfortunately, the mid-cap stocks are not that much liquid and are quite vulnerable to quick selling and damage the value of your stock quite fast.
- Allocation: It is important to allocation your portfolio time-to-time. When you’re targeting are met keep shifting to large-cap stocks so that profits are monetized and booked at regular intervals. Thus, asset allocation is very important if you’re holding mid-cap stocks in your equity-based portfolio.
Final Thoughts: –
When it comes to mid-cap stock investments it is important to monitor risks than managing returns. If you manage the risks the returns will automatically follow-up. And always remember the real testament of mid-cap stocks is in a down market. The ability of a company to manage risks even in the down market is very critical.
Hope, this article helped you in a way you expected it to be. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.