Why You Should Look for 10-Baggers

Hall of Fame investor Ralph Wanger once remarked that baseball fans remember how many home runs Babe Ruth hit in his best year, but they usually can't recall how many strikeouts he had. That keen insight will be central to our new real-money "10-Bagger Portfolio."

Great investors like Peter Lynch and Fool co-founder David Gardner have understood this principle intuitively. Indeed, Lynch is responsible for coining the term "10-bagger," and he once remarked, "all you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out." We completely agree. That's why our 10-Bagger Portfolio will make prudent bets on the greatest investing opportunities of our generation. We're confident that a few big winners will reward all of the stakeholders in our portfolio tremendously.

Our goals
Building on the foundations of an earlier real-money portfolio, we (John Reeves and David Meier) will look for outstanding businesses that will deliver solid returns for investors over the long term. Some selections will be smaller companies that have the potential to become 10-baggers over time. Others will be larger, more-established companies that can go up two or three times in value over a five-year period. In each case, we prefer to take a patient, methodical approach toward meeting our goals.

And we'll only sell if there is a significant change in our investment thesis. It's not our intention to create value by trading in and out of stocks. We'll leave that to the smart guys on Wall Street.

How we'll achieve our goals
We won't be strictly limiting ourselves to any particular style or approach. We're unapologetically looking for the next Chipotle or Apple. These companies were right before all of our eyes in broad daylight, but some folks avoided them or sold them too early because they were "overvalued." Other folks continued to hold these fantastic businesses, and were rewarded with multibaggers.

Here are some tactics that we will deploy in finding outperforming investments:

  1. Find young companies with exciting business models that can change the world. We feel Infinera (Nasdaq: INFN  ) is one such company. It developed a transformational technology, the photonic integrated circuit, and set itself apart from the crowd.
  2. Scoop up companies that benefit from technological or economic trends. MAKO Surgical (Nasdaq: MAKO  ) is a great example of this type of company. It has been called the "next Intuitive Surgical (Nasdaq: ISRG  ) " -- and that's a compliment. Both companies developed robotic surgery systems that focus on minimally invasive cuts and promote shorter recovery times.
  3. Prudently invest in outstanding businesses that know how to create value over time like Denbury Resources (NYSE: DNR  ) . This unique oil company injects CO2 into old wells in order to extract leftover oil. We're pretty excited about the company's prospects.
  4. Finally, on occasion, we may consider investing in a proven business that appears to have stumbled temporarily. Netflix (Nasdaq: NFLX  ) , with its dramatic implosion last fall, is an example of this type of company.

Let's learn together
We'll be maintaining a large database of investing ideas from our reading. We intend to share these ideas on Fool.com and @10-Bagger Stocks on Twitter. Our ultimate aim is to learn and invest alongside our readers and followers. If we can identify a 10-Bagger or two along the way, that will make the experience even sweeter.

For now, you may want to add each of the companies mentioned above to your very own My Watchlist, so you can track and monitor their progress.

John Reeves owns shares of Chipotle and Apple. David owns shares of Apple and Infinera.

The Motley Fool owns shares of Infinera, MAKO Surgical, Denbury Resources, Intuitive Surgical, Apple, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Netflix, Chipotle Mexican Grill, Infinera, Intuitive Surgical, Apple, and MAKO Surgical. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (6) | Recommend This Article (66)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2012, at 9:06 AM, EnigmaDude wrote:

    My top pick for a future 10-bagger is Complete Genomics (GNOM), because they are poised to revolutionize the use of gene sequencing in clinical settings, as evidenced by their recent deal with the Mayo Clinic.

  • Report this Comment On April 20, 2012, at 1:28 PM, woodNfish wrote:

    I'm sorry, but David Gardner is not in the same league as Peter Lynch. Stop trying to shine on your boss. Hopefully Gardner does not promote this kind of butt-kissing.

  • Report this Comment On April 22, 2012, at 8:27 AM, daveandrae wrote:

    I wrote the following in my investment notes on November 25th, 2008 to show the reader that buying a "ten bagger" stock is a hell of lot harder than it looks. Three months later, in March of 2009, the same stock had fallen an additional 50%. Today, that same stock is up 315% from the November 25th 2008 closing price and climbing....and I ignored dividends.

    Of course, the hardest thing to do, all the down and back up again was Nothing. Unfortunately, most people are incapable of doing just that.

    "The 5 year p/e ratio of Harley Davidson is now below 4. I find this price astonishing for this business has earned, on average, a 29% return on shareholder capital over the last 10 years, at an 18% annualized growth rate in per share earnings, and the business is being given away, with no takers. Of all the businesses I own, I know the most about this one, and it is, by far, the cheapest of the entire group. "

  • Report this Comment On April 23, 2012, at 8:49 AM, TMFBane wrote:

    EnigmaDude and daveandrae, Thanks for sharing your investing insights! Learning together is one way of improving the odds.

    @woodNfish, Sorry, you found our comparison to be so obsequious. That wasn't our intention at all, and I agree that it isn't an attractive quality.

  • Report this Comment On April 23, 2012, at 9:49 AM, ETFsRule wrote:

    I love the approach, although I find it hard to imagine that Netflix could ever become a 10-bagger if you bought it today. A market cap of $57 billion for that company seems a bit unrealistic.

  • Report this Comment On April 26, 2012, at 5:57 PM, DJDynamicNC wrote:

    ""The 5 year p/e ratio of Harley Davidson is now below 4."

    Wait, did you say FOUR?

    There must be something going on there. You say you own shares of Harley Davidson?

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