Becoming a multibagger

“All you need for a lifetime of successful investing is a few big winners.”

– Peter Lynch   

Peter Lynch, Fidelity portfolio manager, first coined the term “multibagger”. Essentially, when a stock price grows to 10x the amount you originally purchased it for, you have earned a “ten-bagger”, if it’s 5x the original amount, you’ve earned a “four-bagger” and so on. That’s the idea.

Identifying stocks with a potential for great returns is not exactly an easy feat, especially in light of the fact that there are thousands of public companies that you can invest in.

So, in order to make profitable investment decisions, you should consider these points.

1. Focus on companies with superior positioning – companies offering relevant and sustainable products and services. Industries like technology tend to contain many of these high-quality businesses with low unit costs, high operating leverage and durable growth.

2. Size matters; look for the underdog. Big and popular companies are well and good, but you must also identify the “diamonds in the rough”. Putting your money in them can allow you to rake in solid returns as the company grows. Companies with less than $2 billion market cap tend to have low analyst coverage and institutional ownership with more room to increase market share.

3. Be open-minded: pricey valuations are not automatic red flags. While it is better to buy stocks of great businesses at low prices, many stocks begin with robust prices which grow even further (e.g. Tech and software stocks). It may seem like some of these stocks have reached peak prices but in fact, still have a lot of room to run.

There is no definitive path to identifying these huge winners but following these will help you make informed decisions.

The above reflects the opinions of only the writers who are associated persons of Bamboo Systems & Technologies Ltd. and do not reflect the views of Bamboo Systems & Technologies Ltd. or any of its subsidiaries or affiliates. They are meant for informational purposes only. They are also not research reports. The third-party information provided therein does not reflect the views of Bamboo Systems & Technologies Ltd., or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions, and customers may lose money, including their original investment.