Investment U | Feb 19, 2017 02:39AM ET
How many stocks do you own that are up 10-fold or more?
If your answer is “none,” lend an ear. Because the best-managed equity portfolios aren’t made up of tons of stocks that are up 30% or 50%.
It’s far more likely that they have a lot of middling performers... and a few huge gainers that dramatically increase total returns.
If you doubt it, just ask Peter Lynch, the greatest mutual fund manager of all time.
During his tenure at the Fidelity Magellan Fund from 1977 to 1990, assets grew from $18 million to over $19 billion. This was partly because he earned a 29.2% compounded annual return, a record that remains unmatched in the mutual fund industry. And partly because shareholders continued to invest new money in the fund.
What was Lynch’s great secret? He was a master at identifying successful growth stocks or, more particularly, hypergrowth stocks.
In his book One Up On Wall Street - still an investment classic - Lynch coined the term “ten-baggers.” That was how he described stocks with prospects so explosive that they had the potential to rise 10-fold or more.
Lynch invested in many of these during his time at Magellan. And in recent months, my research team and I have been poring over the ten-baggers of the last few decades to learn everything we could about them.
Although you would recognize some of these stocks - like Priceline.com Incorporated (NASDAQ:PCLN) and Netflix (Nasdaq: NASDAQ:NFLX) - the vast majority are not household names, even though their share prices have risen 10-, 20-, 30-fold or more.
And here’s the important thing: Although these were different companies, in different industries, run by entirely different people, most had several characteristics in common both before and during their dramatic runs higher.
We isolated these characteristics and turned them into six investment criteria - a starting checklist if you will - to guide us toward the “Ten-Baggers of Tomorrow.”
Here are some of the characteristics we found that ten-baggers typically have in common:
It’s been said that one good speculation is worth a lifetime of prudent investing. And it’s true.
Just imagine what a few stocks - or even one - rising 10-fold or more would do for your portfolio’s total return.
A couple years down the road we will stand in astonishment at the market’s best-performing stocks.
Our ten-bagger criteria helps you start identifying them today.
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