A “ten-bagger” (“10 bagger”) is a term used by investors to describe an investment that is exited at 10 times the initial investment, in other words, generates a return on investment (ROI) of 1000%.
10 bagger meaning history: The term 10 Bagger got more used after its common use from Peter Lynch, the renowned Wall Street investor. He borrowed the term from baseball in which all extra hits get referred to baggers.
Ten baggers are mainly used for describing stocks growing tenfold within a provided time frame. An investor, who benefits through a 10 bagger, typically is for the long term.
Ten Bagger in Detail
Most investors dealing in private equities typically go for at least a return of three times on investment, commonly known as the three-bagger. A refined metric for measuring returns would be an internal return on investment (IRR). An IRR of 25% would hold a typical minimum threshold for PE investors, to around three-bagger for five years’ time period.
Therefore when an investment of equities worth $10 million gets done, the investor has to realize around $30 million posts a time period of five years for realizing three-bagger.
Typically investors in venture capital would look for around 7 to 10 bagger deals as they generally invest less established, high-risk start-ups requiring returns that are significantly high.
Key Points
Ten baggers is a term put up by famous investor Peter Lynch for returns that are ten times their first purchase price. Ten baggers begin as stock with the growth of strong earnings but it is still tradable with profitable valuations. Deep industry knowledge is necessary. Developing industries fruit in more ten baggers compared to established ones.
Ten bagger Key Attributes
While looking for a prospective ten-bagger investment, a few attributes must be considered by any investor.
Novel Technology: The high-risk stock market is mainly technology-driven. Early investors that leaded hi-tech companies realized great amounts. However, all kinds of technologies don’t fit in. New Products: Similar to the latest technologies, companies having new products fitting in mega-trends get a better chance at becoming ten baggers. Investors must look out for novel product filling requirements that companies create in addition to production and marketing. Sovereign Action: Governmental and Sovereign action would bear a great effect on the prices of stocks. New laws and regulations lead to the creation and downfall of markets and their trends as well. Thus, the prospective ten-bagger must be supported or else should not get impeded by regulatory authorities. Societal Mega-Trends: Following closely with societal megatrends would be among key elements considered by ten-bagger stocks. More shifting towards novel technologies bring in more prospective investors. Investor interest: A lot of people think that it would be great to find out stocks that are less commonly known. People might think of finding a quality gem, but it wouldn’t be a great indicator for finding prospective ten-bagger.
Although these ten baggers would seem like fine goals for prospective investors to select, the most vital advice provided by Peter Lynch to investors would be to make investments in known stocks. Make sure to do all the research work beforehand and invest for the long run. With even such consistent effort, there is no guarantee of bagging on a ten, but you’ll certainly be a lot of better compared to others.
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