Embark on a mysterious journey through the world of investing with a nod to Agatha Christie’s Hallowe’en Party. A tale where an unfortunate fate awaits those who stumble upon the wrong investment, akin to the apple-bobbing mishap in the novel.
Howard Marks, CFA, co-founder of Oaktree Capital Management, likens fixed-income investing to a “negative art,” stressing the importance of avoiding losers rather than chasing winners. Likewise, in Winning the Loser’s Game, Charles D. Ellis draws parallels between money management and tennis, emphasizing the significance of making fewer errors.
For small-cap investors, navigating the realm of early-stage companies requires a delicate balance of avoiding mistakes while seeking out potential winners. It’s a dance between risk control and alpha generation, akin to steering clear of treacherous waters at a festive gathering.
In the quest for stellar investments, focusing on quality companies can lead to exceptional returns. By sieving out the “bad apples,” investors can uncover hidden gems that drive long-term success.
The 100-Bagger Recipe
Multiple Growth + Earnings/Intrinsic Value + (Earnings Growth of 25x) x (Multiple Expansion 4x) = 100x Return
When hunting for the next 100-bagger, size matters. Small companies offer agility and potential for rapid growth. Look for firms with unique offerings, long-term growth prospects, and strong leadership.
- Embrace the underfollowed. Avoiding crowded trades can unearth hidden value.
- Hold on to winners. Patience can result in exponential gains.
- Profit from quality. Focus on companies with sustainable long-term potential.
Remember, in the world of investing, steering clear of bad apples is just as crucial as picking the winners. Let the winners blossom over time, and watch your portfolio flourish.
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Disclaimer: All opinions expressed in this post are personal views and should not be considered as investment advice. Views do not necessarily reflect those of CFA Institute or the author’s employer.
Image credit: ©Getty Images / andyh
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