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Search For the Elusive Tenbagger

The hunt for amazing-performing growth stocks sometimes translates into one much used, and abused, word – the wonderfully elusive tenbagger of stock-market lore! A tenbagger is a stock where the share price has gone up at least tenfold during the period it’s in your portfolio.

The originator of the term, Peter Lynch, lists his key criteria for finding these slippery tenbaggers, including:

  • Look at small companies because ‘big companies don’t have big stock moves . . . you get your biggest moves in smaller companies’.

  • Look for fast growers where earnings are growing by more than 20–30 per cent per year.

  • Look for insider buying and share buybacks (that is, look for people inside the company buying shares or repurchasing shares they sold earlier, both of which indicate that those in the know are investing in themselves).

  • Diversify and hold plenty of stocks and different kinds of risk in your portfolio.

But Lynch also has two other criteria waiting in the wings, which aren’t so widely referred to by breathless growth fiends because these criteria seem diametrically opposed to what growth investors typically look for:

  • Buy stocks from dead industries with dull products and dull names. The reason? Companies that don’t inspire excitement, either in their products or in their industry, generally have lower share prices and can therefore be good bargains.

  • Buy stocks from sectors where analysts don’t bother looking. A spin-off or a fast-growing company in a no-growth industry, for example, rarely attracts attention from other growth investors.

So Peter Lynch isn’t a growth investor in any real sense of the word. True, he likes to find great investments (who doesn’t!), but in temperament he’s much closer to value investors.

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