The other day, my wife and I were talking stocks over lunch, and she asked, "What's so great about a 10-bagger?"

She was half kidding, because she knows the thrill of big gains in the market. It just so happens that she picked out a stock that turned into a three-bagger over the course of a year. But the more we talked about it, the more the question made sense.

A lot of sense.

The 10-bagger is a baseballish term for that mythical stock that increases its original investment amount 10-fold. The problem with the 10-bagger is that it can cloud your judgment and make you play a bad game. In fact, there may be much easier ways to succeed in the market.

How about small ball?
As great as that 10-bagger sounds (and as much as we enjoyed the trio of three-baggers we scored over the past year) the two of us much prefer the easy two-bagger. Truth be told, we'll take all the 1.5 baggers we can get. The 50% gains we've made on fat, market-panic pitches like Nokia are much easier to identify and score than any of those high-octane home runs.

To put it in Moneyball terms, I'd much rather invest in fat guys who don't get outs.

The wrong kind of 10-baggers
But let's be honest; we all still hope for those 10-baggers. That's a decent field of dreams, so long as you play the right game.

Here's the wrong game: The quick 10-bagger. Fill their heads with home-run fantasies, stick 'em in the box, and you're going to see a lot of investors strike out. When you take a lot of big swings, you do a lot of whiffing. Then you walk back to the dugout with clean pants and a goose egg on your scorecard.

Over time, that whiffing can really add up -- or, when it comes to your money, really subtract. Study after study shows that investors habitually overpay for those hot pitches -- the growth stocks. The overall result? "Growth" returns lag those of investors who look for cheap, solid companies.

The right kind of 10-bagger
People think you need to be looking for tiny upstarts in order to get home run performance. The truth? That's bull. A full 33 of the companies that were (dividend-adjusted) 10-baggers over the past 10 years started with market caps of more than $1 billion. Twenty of them began their runs at more than $2 billion. Here are just a few of those that made the grade:

Company Name


1996 Market Cap (000,000)




UnitedHealth Group



Merrill Lynch









Charles Schwab






US Bancorp



TJX Companies






Screening and data from Capital IQ.

That's a pretty impressive list, and a lot of the companies on it needed some amazing growth to pull it off. But it doesn't need to be that way, either.

Here's your fat guy who won't get outs
Consider this: 16% a year will not only beat the heck out of the market's average returns, but also earn you a 10-bagger about once every 15 years. If you were surprised by the boring companies in the table above, consider that since the 1950s, snoozy household names like Altria, Abbott Laboratories, Tootsie Roll Industries, and Pfizer delivered those 10-baggers over and over again. Jeremy Siegel showed this in The Future for Investors, where he highlighted the importance of finding and holding dividend payers for the long run.

You want 10-baggers? You can get them with realistic expectations and dividend stocks. The better news is that these stocks not only beat the market, they do it with less risk. This is exactly the strategy I follow with a good portion of my own portfolio, and it's the one advocated by James Early in Motley Fool Income Investor. A guest ticket (sorry, there's no "mini bat day") will let you learn how he aims to find the 10-baggers of tomorrow while avoiding all those strikeouts.

This article was originally published March 30, 2006. It has been updated.

Seth Jayson was always a skinny guy who made lots of outs. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. UnitedHealth and Schwab are Stock Advisor recommendations. UnitedHealth and Pfizer are Inside Value selections. US Bancorp is an Income Investor pick. Fool rules are here.