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From Mark Ford, editor, Creating Wealth: From 1977 to 1990, the Fidelity Magellan Fund grew from $20 million to $14 billion.
During that time, Magellan earned an average annual return of 29.2%… almost double the S&P 500’s return.
It’s no wonder many on Wall Street consider the fund’s manager, Peter Lynch, to be one of the greatest investors of all time.
But when I read his book, One Up on Wall Street: How to Use What You Already Know to Make Money in the Market, I was surprised—even shocked—by what he said.
Lynch attributed his success to a combination of common sense and solid financial analysis.
But he said the real reason he beat the market so dramatically over that 13-year time frame was his ability to include big-winner companies—those able to make huge gains of 1,000% or more—in his portfolio.
He called these stocks “ten baggers.”
In the book’s introduction, Lynch says:
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I’ve developed a passion for making 10 times my money early in my investment career. The first stock I ever bought, Flying Tiger Line, turned out to be a multibagger that put me through graduate school. In the last decade (i.e., 1980 to 1990), the occasional five and ten baggers, and the rarer 20 bagger, has helped my fund outgain the competition… In a small portfolio, even one of these remarkable performers can transform a lost cause into a profitable one. It’s amazing how this works. |
To illustrate his point, Lynch produced a chart, which we’ve replicated below. It covers a period of less than three years, from December 22, 1980, to October 4, 1983.
It shows two strategies.
In Strategy A, the assumption is you invested $10,000 in the 10 stocks listed.
In Strategy B, you also invested $10,000… but in 11 stocks. The 11th stock is Stop & Shop (one of Lynch’s actual big wins).
Following Strategy A, Lynch tells us, you would have turned your $10,000 into $13,040 in that time span—a mediocre return of 30.4% over three years. (The market was up 40.6% during the same period.)
But had you followed Strategy B—buttressed by one 900% winner—your $10,000 would have turned into $21,060, giving you a 110.6% return—nearly triple the market rate.
“To make this spectacular showing,” Lynch says, “you only had to find one big winner out of 11… The more right you are about any one stock, the more wrong you can be about the others and still triumph as an investor.”
Reeves’ Note: In the August issue of Creating Wealth, Mark reveals an exciting trial enhancement to PBRG’s Legacy Portfolio strategy. Regular Daily readers already know Legacy is the surest, safest way to build substantial wealth in the equity markets.
The enhancement adds in a Legacy “Lynch component”… offering the potential for ten bagger returns in addition to the portfolio’s stalwart: relentlessly growing yields.
The sign-up period for the Legacy Portfolio is now closed. But you can click here to join the waitlist. Mark and his Legacy team will send you regular updates and insights on the strategy until the next Legacy “open season.” And everyone can learn more about Lynch and Legacy—100% free—in Mark’s latest podcast, below.