Sunday , 2 October 2022

The Phillips Curve & Multi-bagger Stocks: What You Need To Know

By Lorimer Wilson, Founder & Managing Editor of munKNEE.com and a frequent contributor to eResearch.com, usfinancepost.com, bitgrum.com and talkmarkets.com.

Part ONE: What is the Phillips Curve? 

The curve highlights the inverse relationship between unemployment and inflation. William Phillips reasoned in a paper back in 1958 that:

  • when the rate of unemployment was high, employers rarely hiked wages because workers were easy to find but
  • when unemployment was low, employers raised wages faster because they had trouble luring workers and that inflation in wages soon lead to an increase in the prices of goods and services.
Philips CurveSource

Ross Cameron of warriortrading.com points out that the curve has been essential in developing the mathematical models used by the U.S. Federal Reserve and other central banks as they analyze macro-economic policy because Federal Reserve policymakers have a dual mandate to promote price stability and maximum sustainable employment.

Part TWO: What are Multi-bagger Stocks?

Multi-bagger stocks generate returns more than twice what the original cost of acquisition was. For example, a 5-bagger stock gives a return of 5x the original amount invested, and a 10-bagger gives a return 10x more than the initial investment. 

Ross Cameron of warriortrading.com points out that there are a number of variables to keep in mind when trying to identify these multi-bagger stocks, namely:

  • Earnings growth: If a company has posted steady and consistent earnings growth over time, its shares could be your multi-bagger.
  • Fundamentals of the company: Keep track of the overall picture of a company’s business and the chances of success in light of the information.
  • Efficient management: How well is the company managed? What is the general culture? Do you feel that those at the helm are competent? A visionary management team, outstanding customer service, and first-class execution is what drives the long-term company results and the stock price.

Stocks with multi-bagger potential, i.e. stocks issued by companies demonstrating sound management, superb production techniques, excellent research and development skills and tremendous growth potential, are often difficult to find, but you can identify them thorough fundamental analysis.