As an investor starting out, it's hard to differentiate good investments from the great ones. But as investors gain more experience, it becomes easier to recognize the gems. Finding great stocks is only a part of creating long-term wealth, however. Adding to your winners, even after the price has run up, can be a solid strategy in building a lasting portfolio. 

MercadoLibre (NASDAQ:MELI) is one example of a winning stock that's kept on winning and still has plenty of room to run. Let's take a look at how I built a position in this Latin American e-commerce operator, gaining a three-bagger return, and what the lesson here is for investors.

2013: My introduction to Latin America's e-commerce leader

In 2013, MercadoLibre was still relatively small, but it showed lots of promise. It was the e-commerce market leader in 10 countries in Latin America based on unique visitors and page views. It had a robust ecosystem of six related e-commerce businesses including payments, advertising, and logistics focused on Latin America. The region's 598 million people were adopting the internet at one of the fastest-growing rates in the world. Here are some key stats from that year.

Metrics

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Revenue,
YOY growth

$103 million,
23%

$112 million,
26%

$123 million,
27%

$135 million,
30%

Revenue growth
in local currency

36%

38%

45%

50%

Gross merchandise volume,
YOY currency-neutral growth

$1.56 billion,
30%

$1.73 billion,
45% 

$1.88 billion,
49%

$2.14 billion,
49%

Payment volume,
YOY currency-neutral growth

$532 million,
62%

$578 million,
54%

$642 million,
55%

$746 million,
66%

Note: All figures in U.S. dollars. Data source: MercadoLibre Q4 2013 results presentation. YOY = year over year. 

As with any investment, there were risks, especially in an emerging market. Currency and political instability were considerations, as was the entrance into the market of global e-commerce competitor Amazon.com, which had started operations in Brazil in 2012. But the Latin American specialist had a 13-year head start in the region and plenty of local experience to build on. 

I bought shares five times over seven months in late 2013 to early 2014 at per-share prices between $101 and $137, which created a position around 2% of my stock portfolio. 

2015: An opportunity to buy at a discount

During late 2014 and 2015, the company was experiencing currency devaluations in its key markets, which significantly impacted its reported growth in U.S. dollars. For example, its Q2 2015 growth in gross merchandise volume in local currencies was an amazing 85%, but in U.S. dollars it was a negative 8%. But when investors looked at items sold, a metric that didn't depend on currency translation, it grew 28%, showing that its e-commerce business was continuing to thrive. 

At this point, my investment in MercadoLibre was showing a paper loss. But I took the opportunity to add shares below $100 per share, which increased my position to around 3% of my portfolio.

MercadoLibre stock price history from 1/1/2013 (around $82) through 6/12/2020 (at $896).

Stock price history from Jan. 1, 2013, to June 12, 2020, with my 12 buy points along the way. Data source: Yahoo! Finance. Chart by author.

2017: Adding to a winner

Fast-forward 18 months and the stock had run up to around $220 a share. The company had just completed a record 2016 with a 41% increase in items sold for the year to 181 million, which was more than double from 2013. Its MercadoPago payments platform was gaining traction outside its e-commerce website with a 73% gain for the year in transaction volume. The total payment value reached $7.8 billion for 2016 and came close to eclipsing the $8 billion sold on its website. Revenues were up 30% to $844 million and had an even higher growth rate when measured in local currencies. Lastly, the platform was gaining traction on mobile devices with more than two-thirds of new users becoming customers by using their smartphone.  

E-commerce in Latin America was ramping up, and MercadoLibre was leading the charge. I added more shares at $219. Between this purchase and the gains, my position was now almost 7% of my portfolio and my second-largest holding.

Map of Latin America with the countries filled in with their flags

MercadoLibre is the leading e-commerce provider in Latin America. Image source: Getty images.

2018 to today: Buying opportunistically

Between December 2018 and April 2020, I added shares five more times at prices ranging from $278 to $592. By following the company for more than five years, I had become more familiar and comfortable with the business, its management team, and the long-term prospects. It was easy to see that it was growing stronger in the region and solidifying its lead in payments and e-commerce. 

Today this stock is my largest holding at 13% of my portfolio and has returned an average of 250% over the 12 times I've purchased it. The case for this e-commerce and payments specialist remains strong. Goods purchased online in Latin America are still less than 5% of total retail sales. MercadoPago is experiencing significant growth and has a majority of its payments revenue now coming from off-platform purchases. Even with Amazon still in the mix in Brazil, it's not hampering the company's growth. Shareholders should be comfortable holding this growth stock for another decade or more.

The lesson for investors

As you first buy shares of a company stock, think of it as an introduction to a long-term relationship. With skin in the game, you'll be more apt to read up and get to know the business better over time. Use this knowledge to your advantage. If the company is performing well and you still have confidence in its future, investing more capital could be a great option, even if it's at a higher cost basis. 

As you add to your winners, you'll be following in the footsteps of famed investor Peter Lynch, who was known for saying, "The best stock to buy is the one you already own."