How to turn $10,000 into $1 million: One investor reveals the secret sauce for profiting from elusive hyper-growth stocks
- Chris Mayer, portfolio manager and co-founder of Woodlock House Family Capital fund, reveals the methodology and characteristics behind an investing technique that lead to offer 100 times returns.
- He also details the amount of stringent discipline it takes to achieve an exponential trade, and how investors can improve their odds of succeeding by adopting a simple strategy.
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Everyone wants to strike it rich in thestock market, but no one wants to work for it.
As investors, we’re constantly exposed to stories of windfall trades, perfect calls, and market-trouncing performance. And due to our envious human nature, the more we hear about the more aggressive we get.
The problem, however, is that the best practices forinvesting prosperity are often boring and lack the appeal of more exotic strategies.
But one portfolio manager thinks the correct approach to super-sizing your investing returns using a single trade should be on par with watching paint dry.
Chris Mayer, portfolio manager and co-founder ofWoodlock House Family Capital fund, has removed the ambiguity behind the types of trades that can offer 100-times returns — which he refers to as “100-baggers.” He’s provided handy guide to pursuing the next winner.
And, to be clear, this isn’t a 100% gain. This is 100 times your money.
“The first thing that you learn is that becoming a 100-bagger is a math problem,” Mayersaid on the Meb Faber Show, an investing podcast “And if you compound at a certain percentage, for a certain number of years you’re going to get there.”
He continued: “So, say 20% return for 25 years is a 100-bagger. Or a 14% return, it would take you about 35 years.”
Read more: ‘A once in a decade opportunity’: JPMorgan breaks down how to take advantage of the largest bubble in modern history
That’s a long time, but it’s not impossible. If someone is willing to wait long enough, the math checks out.
The methodology is simple: Look for companies with a high rate of return — anywhere from 15-20% — that are able to produce that result consistently. Then construct a portfolio of those securities, and wait.
The technique revolves around “the ability to invest capital at a high rate, and then take that return, and then reinvest it again, and again, and again and repeat, repeat, repeat,” Mayer said. “Because again, if becoming a 100-bagger is mainly a math problem, then you want a company that’s going to be able to basically solve that math problem and do it for a very long time.”
As far as the characteristics that Mayer looks for, he prefers low multiples, growth between 15-20%, smaller-sized companies, and firms that are associated in some way with an entrepreneur. It’s also important to get in early, when a company is fledgling enough to offer such prolonged upside potential.
But beyond that, the approach is far from simple. Put simply, finding companies able to sustain such a growth rate over prolonged period is the hard. A look at past examples 10o-baggers — Monster,Amazon, andSouthwest Airlines to name a few — shows just how strong a company’s potential must be at the time of purchase. It also shows, however, that it’s possible.
Further, Mayer notes that lots of these stocks have declines of 50% or greater on the road to becoming a 100-bagger, meaning that a disciplined approach is absolutely crucial. To illustrate just how difficult it is to stay the course, he highlights a seven-year stretch where the stock price for Berkshire Hathaway — an 18,000 bagger — went absolutely nowhere.
To help increase your odds of success, he suggests having two separate accounts.
“You put things there and you tell yourself you’re not going to look at it, and you’re not going to make changes,” Mayer said. “And have another account where you can scratch the itch where you feel you have the need to do things all the time.”
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