10 Baggers, from Art Cooper

November 24, 2009 |

 I heard that 25% of stocks were responsible for all of the market’s gains this year. Wasn't this Peter Lynch's mantra? It's the "10-baggers" that are responsible for all the gains in a portfolio. Play for them, while trying to avoid or weed out the real losers.

Alston Mabry writes:

This is the "ICBM" effect. It showed up a couple of years back when we looked at these guys' work on trend following. They were arguing for a back-tested system that bought mo-mo stocks and then sold them on certain rules. But the key issue was to buy enough smaller stocks so that you snagged some of the ICBMs and rode them up, which created essentially all the gain long-term. Now they're saying that was true for the whole market.

Competition and innovation!

Victor Niederhoffer comments:

One should test all these random gyrations with the cross section for a bunch of stocks that investors could reasonably have in their port like the S&P 500, and survivor based, and see that probably all these enormous pareto type concentrations with 10% accounting for 90% the way they do in everything else are most probably due to normal properties of the normal distrituion with reasonably wandering.

Kim Zussman writes:

 What Art write reminds me of this joke:

“… y’know, the, this… this guy goes to a psychiatrist and says, “Doc,
uh, my brother’s crazy; he thinks he’s a chicken!”

And, uh, the doctor says, “Well, why don’t you turn him in?”

The guy says, “I would, but I need the eggs…”

Woody Allen, "Annie Hall"





Speak your mind

2 Comments so far

  1. Jeff Watson on November 24, 2009 11:39 am

    Applying Clews's "Cane" system is the best chance for buying those stocks that will become 10-baggers.

  2. Steve Leslie on November 24, 2009 7:47 pm

    Lynch also wrote that most of the big winners he had performed best in the 4th or 5th year of ownership. The think about 10 baggers and upward is you need to hold onto them for awhile. This is why studying bamboo is so critically important. A bamboo tree barely grows for four years and then in space of a few months grows to 100 ft tall. So the question is did it take four years or a few months for the bamboo to grow that tall.


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