One book more than any other is responsible for my 25-year career in the investment business: One Up on Wall Street by legendary Fidelity Magellan fund manager Peter Lynch.
In 1989 when this book was published, I was still a rookie stock broker eager to learn everything I could about the business of investing. By then, Lynch was already a living legend, having started at Fidelity in the 1960s and producing an enviable track record for the flagship Magellan fund since 1977.
Lynch coined the phrase “tenbagger” referring to those rare but wonderful stocks that can return 10 times your money, a 1,000 percent gain.
As Lynch points out in the book: “To make this spectacular showing, you only had to find one big winner out of 11. The more right you are about any one stock, the more wrong you can be about others and still triumph as an investor.”
|Peter Lynch advises us to dream big as investors. And he coined the phrase “tenbagger.”|
Essentially, Lynch advises us to dream big as investors. Find unique, fast-growing companies that have huge upside potential, because just a few of these tenbaggers over an entire lifetime of investing can have a big positive impact on your wealth.
But after nearly 15 years of paltry stock market returns, the big dream of landing the elusive tenbagger has faded. From 2000 to the end of 2013, the S&P 500 returned just 1.7 percent per year on average. And the Nasdaq 100 Index, known for its high-growth tech stocks, has been a money-losing bet, with average annual price gains of minus 0.2 percent.
But now is the time to dream big and start stalking the tenbaggers again!
Small, aggressive new companies — the ones capable of growing 20 to 25 percent a year — were among Peter Lynch’s favorite investments as a professional fund manager. “If you choose wisely, this is the land of the 10 to 40 baggers, and even the 200-baggers,” says Lynch. “With a small portfolio, one or two of these can make a career.”
Another investor I know couldn’t agree more, and he is building an enviable track record of his own right now, by uncovering new tenbaggers in the making.
Jon Markman started investing seriously in the mid-1980s, captivated by fast-growing new companies like Microsoft, Oracle and PeopleSoft and in the 1990s a then unknown computer networking company called Cisco Systems.
Of course all of these once unfamiliar stocks became household names as they went on to become technology titans. The phrase tenbagger can’t even do justice to the spectacular 65,543 percent return investors could have earned owning Cisco stock during the 1990s.
Jon is an authority on how to find stocks with this kind of upside potential. You see, he had a front-row seat for the tech boom, going to work for Microsoft in 1997.
And he was there for the launch of Amazon.com that same year. Smart institutional investors said Amazon would never survive; it was vastly overpriced; and who wants to shop on their PC when there’s a mall right down the street.
Amazon, of course, proved them all wrong, soaring 19,864 percent since its initial public stock offering in 1997, but as Jon astutely points out, Amazon’s ascent wasn’t straight up.
In fact, while Amazon nearly doubled in its first 90 days as a public company, there was a better opportunity to invest — after the fact and below the ground-floor IPO price.
Jon refers to this as a cooling-off period … anywhere from a few months to as much as one year after the IPO, hot new stocks often cool down. After the initial hype has died down and investors have moved on to the next hot, new stock; that is the best time to hunt for potential tenbaggers.
In Amazon’s case, just a week after the IPO in May 1997, you could have scooped up the stock for just $15.75 per share, at a nice discount to the over-subscribed IPO price of $18.
Within the next two years, Amazon became a tenbagger.
Yahoo was another high-profile IPO around the same time as Amazon, and it followed the same pattern. When it went public in April 2006, Yahoo was also considered over-hyped and richly valued at an IPO price of $13 a share.
Yahoo nearly tripled on its first day as a public company, closing at $33.
But if you followed Jon’s approach and waited patiently for the IPO hysteria to pass you could have bagged this tenbagger very close to the ground-floor IPO price. Three months later in July 2006, you could have bought Yahoo at $15.50 per share.
Just three years later, Yahoo became a fiftybagger, gaining 5,000 percent.
Do you see a pattern here? Jon Markman sure does. In fact he has turned it into a winning formula for uncovering new, fast-growing companies with unlimited upside potential, and he is building a fantastic track record to prove it.
Jon sees a whole new tech stock boom already under way, but the best is still ahead, and I agree. This time around it will dwarf the massive gains of the 1990s and 2000s creating dozens of tenbaggers along the way.
That’s why I’d like to welcome Jon Markman to our Money and Markets family of editors. You can read his investment insights and journey along with him as he hunts for the new tenbaggers of the mobile Internet age right here in the pages of Money and Markets.
In fact, Jon’s first Money and Markets article appeared Monday, so if you missed it you can read it here. In it, Jon details six new potential tenbaggers in the making. The fact is there are dozens more fast-growing small stocks just like these, which have come public in the past few years. These are the next great emerging growth stories that will become household names just a few years from now, and perhaps thousands of percent higher in price.
P.S. Make sure you check out the Money and Markets blog and catch up on all of Jon’s recent articles. It’s your chance to ask one of the world’s greatest tech stock experts anything you like about technology stocks: Simply click this link to jump over to the blog. Jon will check in during the day to answer your questions.