Most everyone is looking for that great stock pick that can make them rich. I like to think in terms of bags of money. A stock that doubles in value is a two-bagger. You have two bags of money for the one you started with. I like to think the ultimate is the ten-bagger. Start with a $1,000 and turn it into $10,000. Better yet, turn $10,000 into $100,000. There are not many ten-baggers out there but they do exist. I have been fortunate to invest in a couple over my career. It usually involves both good timing and patience even more than skill to get a ten-bagger. You have to buy at a good price. More importantly, you have to be disciplined to not want to take your money off the table when you have doubled, tripled or quintupled your money. That is not easy to do.
USA Today's Matt Krantz has a list of the 11 stocks that have been ten-baggers for the two years ending December 31, 2010. It is interesting that 11 stocks make the list for two years but only 4 stocks would be on the list if you went back five years. What did I say about timing? Remember how the stock market was way down at the end of 2008? Those dark times were a great opportunity to buy these companies.
The interesting thing about ten-baggers is they come in various sizes and flavors. They are not necessarily the next new thing. It can just as often be an old name that fell on hard times and turned things around. Take a look at the several on the list and see what I mean.
Crocs 14 bagger Your kids bought the shoes but you didn't buy the stock?
Ion Geophysical 12 bagger High tech seismic imaging for oil and gas
Ruby Tuesday 11 bagger Stock fell off a cliff in late 2008 and came back strong
SFN Group 11 bagger Staffing solutions that also fell and came back
La-Z Boy 11 bagger You could have been in the recliner and enjoyed this return
Sonic Auto 10 bagger Auto dealer with 122 locations based in Charlotte
The common denominator in all these picks was that the stock dropped like a rock in late 2008 and rebounded. Therefore, big gains are realized more easily by buying at the right price than by selling at the right price. For example, Crocs was selling for around $40/share in January, 2008 and dropped to $1.24 by the end of the year. It climbed back to over $17 by the end of 2010 for that 14x gain.
None of these ten-baggers was a new stock or start up. Only one could be argued to be anything high-tech or new economy. We are talking about shoes, restaurants, furniture and the like. However, just as you like to buy shoes and furniture on sale, it is also the best strategy for buying stocks. For the big gains don't buy when every one else is buying. Buy when every one else in selling.
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