Many investors rightly celebrate finding "multibagger" stocks that go on to double, triple, or even quadruple from their initial entry price. But what about stocks that return 100 times your initial investment, earning a gain of 10,000% or more?
It might sound ludicrous, but these incredible equities are more common than you might think. In his book 100 Baggers: Stocks That Return 100-to-1 and How to Find Them, investor and author Chris Mayer studies 365 stocks that achieved 100-bagger status between 1962 to 2014.
This year, I finally achieved the 100-bagger feat myself thanks to Nvidia's (NVDA 1.56%) incredible AI-fueled rally. I've personally owned shares of Nvidia continuously since 2010, though when I began writing for The Fool in 2013, Nvidia was trading at a split-adjusted price of $3.39 per share. Today, Nvidia stock is trading hands at around $461 per share, good for a gain of over 13,500% (so technically a 135-bagger) from that cost basis.
NASDAQ: NVDA
Key Data Points
But it's not easy to find, buy, and hold any stock long enough for it to multiply your money by 100 times or more. So, let's take a retrospective look at my experience with Nvidia, with four investing lessons I learned along the way:
1. Buy and hold works -- if you're patient
I know many short-term traders don't like to hear it, but I've learned first and foremost that "buy and hold" investing works. For the "buy and hold" strategy to work, you must be patient, willing to endure outsized volatility for years at a time, and continuously ensure your thesis remains intact. Sometimes that even means enduring multi-year periods of underperformance.
Though Nvidia shares currently trade near their all-time high today, my resolve was repeatedly tested as I watched Nvidia shares plunge 20%, 30%, and even 50% or more from its highs countless times over the past 13 years:
Between the siren song of day traders, swing traders, high-frequency traders, short sellers, and TV pundits yelling from the rooftops that Nvidia was broken, overvalued, or otherwise a terrible investment idea, I'd be remiss if I didn't admit that there were dozens of times when I was tempted to sell in order to "lock in" what would have been perfectly respectable gains. Each substantial drop tempted me to lament a missed opportunity to jump ship and put my money to work elsewhere, if only to buy back into Nvidia at a lower price later on.
But each time, I resisted that temptation to sell, as I was determined my thesis remained intact.
One caveat: That's not to say you should always buy and hold forever no matter what. It's perfectly acceptable to sell if you need the money for something else outside the stock market in the short term. I did just that when I sold a decent-sized chunk of my earliest Nvidia position back in 2015 -- not because I was locking in profits or thought my thesis was broken, but rather because I needed cash to help fund a down payment on my home. To be clear, I don't regret selling some shares to fund the purchase of my forever home. After all, those sorts of things are why we invest in the first place.
2. It's OK if your thesis evolves...for the better
Speaking of building a thesis, I've also learned it's OK -- preferable even -- when your thesis changes over time as the business continues to evolve. The key here is ensuring that said evolution is for the better, not for the worse.
When I wrote some of my first Fool.com articles on Nvidia in 2013, for example, I was focused on Nvidia's dominance in the world of gaming GPUs, as well as its cutting-edge Tegra chips aimed at permeating the tablet and smartphone markets. In 2014 and 2015, Nvidia's self-driving vehicle ambitions and drone platforms piqued my interest. And over the last several years investors have rejoiced time and again as Nvidia enjoys immense tailwinds driven by everything from data centers to cloud services, cryptocurrency mining, and now generative AI applications.
In any case, the Nvidia of today is not the same business in which I bought shares more than a decade ago. And that's a good thing.
3. Capital returns programs can supercharge gains
Next, don't underestimate the positive impact of capital returns initiatives as it pertains to accelerating your returns.
Case in point: If you include dividends in Nvidia's returns calculation over the past 10 years alone (see its total return percent change below), it adds an incredible 880 percentage points to your total gains -- that's nearly a 9-bagger from dividends alone!
Meanwhile, even as some investors argued Nvidia was wasting billions on share buybacks over the years -- reasoning the stock was "expensive" and that the cash would be better used on incremental R&D or sales and marketing to drive top-line growth -- I've long insisted I was pleased with Nvidia's repurchase initiatives.
For perspective, as of January 29, 2023, Nvidia had selectively repurchased a total of 1.1 billion shares for $17.12 billion since initiating its repurchase program, good for an impressive average of $15.56 per share. That's a 29-bagger from its average repurchase cost basis! In May 2023, the company extended its authorization to repurchase up to an additional $15 billion through the end of this year.
Those totals might seem small in the grand scheme of things given Nvidia's $1 trillion+ market capitalization today, but they compound over time as every share repurchased increases the value of remaining shares outstanding.
4. A few big winners can offset MANY losers
While 100-bagger status is amazing and fun to write about, I'd be remiss if I didn't remind you that it's also an arbitrary milestone that could prove fleeting with another meaningful pullback from these extraordinary highs.
But you also don't need a 100-bagger to make an enormous difference in your returns. Even a few significant winners can offset many, many losers in your investing journey.
Assume, for example, you were to invest the same amount of money -- let's say $1,000 apiece -- into 10 stocks. If even a single one of those stocks turns out to be a 10-bagger (earning you $10,000 on your initial $1,000) and the rest fall 50% (bringing your remaining investment into the other nine to $500 apiece, totaling $4,500), you're still coming out far ahead of your initial cost basis.
That's not to say you should aim for only a 10% success rate in your own investing journey; the world's best investors are "only" right around 60% of the time. But if you aim for winning investments more than half the time and you manage to identify a handful of five baggers, 10 baggers, 20 baggers, or even 100 baggers along the way, I suspect you'll be more than pleased with your results.
