The Motley Fool Discussion Boards
Investment Analysis Clubs / Value Hounds
|Subject: Ten Bagger: two home-runs and a double||Date: 10/11/2012 9:13 AM|
|Author: captainccs||Number: 11962 of 22663|
Murph's post is too important to leave it buried in an INTC thread:
Putting aside INTC for a moment, from my standpoint, I would have been a lot better off trying to hit more dividend growth investing "singles" than always trying for the fast grower "home runs". As the last words s in this post describing my current investing approach say:
...I might add, that had I taken this approach ( centered on good solid balance sheet dividend payers/growers ), when I was 25 ( versus starting this at age 57 ), my net worth would be many times what it is right now.
My advice to all but the most sophisticated of investors is simply to not swing for the fences so much...rather concentrate on hitting single after single...and you'll score a lot more runs. ;-)
There can be no doubt that ten baggers worked for Peter Lynch and that slow and steady worked for Buffett and other Graham-and-Doddsville investors. Every investor must find out what style best suits him, what he can make work. BTW, Lynch was not all ten baggers, he had a core of slow and steady and a long tail of potential ten baggers. He had so many stocks that it was said that there was no stock that Lynch didn't like. Part of his success came from breaking the mutual fund mold. Mr. Johnson told him to own just a few good stocks, advice that he conveniently ignored (and Mr. Johnson didn't fret about being ignored).
There is no need to take "ten baggers" literally. For one, Lynch never said ten fold in how many years. Ten fold in ten years is a CAGR of 25.9% and it drops off as time increases:
You can turn this around. If you have a string of investments producing 25.9% CAGR each, no matter in what time frame, you have a "synthetic" ten bagger! By the same token, if you fill your portfolio with a bunch of safe stocks producing a 4% dividend and no capital gains you will produce a 4% CAGR. It's simple maths, nothing else.
My own style has developed into the idea that each position must carry its own weight. With stocks the outcome is uncertain but with options the risk and the reward can be calculated. Say you are an average stock picker who just manages to match the averages. Instead of buying stocks directly, buy the same stocks via selling puts so that the net cost is 10% below the current price. Simple math says you should outperform the market because you are buying below market price. Of course, if the stock goes up above the strike price you won't get the stock, just the option premium. If that premium happens to have a CAGR of 25.9% you have effectively bought a "synthetic" ten bagger!
My point is that you don't have to exclude one method or the other, instead, you can combine them into a winning strategy like Peter Lynch did.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|