10-Bagger

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Definition: 10-Bagger


10 Bagger

Quick Summary of 10-Bagger


A 10-bagger is stock-geek-speak for when a stock returns 10 times its original investment. The term was popularized by Peter Lynch in his book One Up on Wall Street.

Note that 10 times your money is actually 900% (not 1000%, which would be an eleven-bagger).



Video Guide For 10-Bagger




Full Definition of 10-Bagger


A ten bagger investment is one that yields a return of ten times the initial investment, or a 1,000 percent return on investment (ROI).

Peter Lynch, a well-known Wall Street trader, coined the term “ten bagger,” which he adapted from baseball,

where extra base hits are commonly referred to as “baggers.”

Stocks that grow tenfold in a short period of time are referred to as ten baggers. To reap the benefits of a ten bagger, an investor must often commit to the investment for a long period of time.

Peter Lynch’s Ten Bagger Investments

Lynch’s book, which was first published in 1989, chronicled his time as manager of the Fidelity Magellan Fund. During Lynch’s tenure, the fund’s investments increased from $18 million to almost $19 billion. The increase resulted into a 29.9% annual rate of return.

Lynch used two major criteria to select stocks to invest in. First, he bought stocks with a lower price-to-earnings ratio than the industry average. He also looked at stocks with high earnings per share that were underperforming the market. Wal-Mart is an example of a ten-bagger investment, according to him. Investors who bought Wal-Mart stock when it went public would have made 30 times their initial investment, according to Lynch.

Key Characteristics Of A 10-Bagger

There are various characteristics that an investor should look for while looking for a potential ten-bagger investment:

The Fundamental Influence

A large corporation growing in a closed economy grows at a slower rate than a small company growing in the same market. A major corporation can rarely develop faster than the economy as a whole. As it grows larger, the growth rate slows until it reaches a plateau, at which time it becomes static. When investors put their money into a company that is already large, the chances of the investment rising tenfold are minimal.

Investing in small-cap stocks or early-stage start-ups increases your chances of landing a 10-bagger.

The Valuation Of A Company

An investor must think about how much a company’s stock is worth and how likely it is to increase in the future. Stocks that are low-priced or unknown yet have a strong potential for growth are ideal investment candidates. Because the stocks were already expensive when purchased, an investor who buys them at a high price is unlikely to obtain a significant return.

Consider an investor who purchases a $10 stake in a new technological business that is expected to expand at a rate of 30% per year for the next five years. This indicates that the company’s stock is on track to surpass $100 and become a ten-bagger.

Fair Operating Environment

A good business operating environment is the backbone of a multi-bagger. In order to grow quickly, the company must function in a favourable economic climate. Fair tax legislation, technological solutions, and fair competition are all part of the ideal environment.

Internally, the company must have solid core fundamentals that act as growth accelerators. Great profitability, optimal debt levels, high growth potential, and distinctive product offers are among the fundamentals. All of these features can help a company go from a one-bagger to a ten-bagger in a short period of time.

Three Keys To Identifying 10 Bagger Stocks

Investors can use these three ideas to help them produce big profits on their investments.

Start Small

Starting small pays off. In comparison to large-cap equities, small-cap stocks have higher growth potential. Apple Inc., for example, is currently one of the most powerful corporations in the stock market. It has a market capitalization of about $1 trillion (as of 2018). To be a ten-bagger, the company’s market cap would have to reach $10 trillion.

Apple, Netflix, Google, and Tesla are examples of major corporations that began as little businesses and grew into ten-baggers.

Diversify Your Investment Portfolio

Stocks that produce ten-bagger returns are rare to come by, and they necessitate a lot of effort and a willingness to take risks. Investing in many high-growth stocks reduces risk and increases the possibilities of some of your investments becoming multi-baggers. For example, if an investor undertakes rigorous market research and invests in 20 small, high-potential stocks, one or more of the stocks will likely deliver ten bagger returns in the future.

When it comes to investing in start-ups, venture capitalists apply the method described above. They invest in a number of high-potential businesses with the potential to generate large returns in order to offset losses from other investments.

Longer Holding Durations Result In Higher Profits.

While it is conceivable for an investment to rise tenfold in a year or two, most equities only do so over the course of ten years on average. The first ten years of a small company’s life are critical in propelling it into the league of giant corporations within a decade.

As a result, in order to reap the benefits of enormous returns, investors must be willing to hang onto their assets for an extended period of time. If an investor sells a stock within a few months after purchasing it, he or she is unlikely to acquire a ten-bagger.


Related Phrases


Daybagger
Two-bagger


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Definition Sources


Definitions for 10-Bagger are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 5th January, 2022 | 9 Views.