Ten Baggers and Spiffy Pops

Ten Baggers and Spiffy Pops

The investing great Peter Lynch in his book One up on Wallstreet tried to correlate investing success to baseball by referring to successful stocks as “baggers”

Here is the definition of a Ten Bagger from Wikipedia

Ten bagger is an investment term coined by Peter Lynch in his book One Up On Wall Street. This refers to an investment which is worth ten times its original purchase price, and was adapted from baseball where “bag” is a casual term for “base”, and extra-base hits like doubles, triples, and home runs are colloquially called two-, three-, or four-baggers.

So in other words everytime a stock appreciates in value 100% from its original purchase price it is considered a bag. So a home run (4 bagger) in this analogy is a stock that has gone up 300% and the infamous ten bagger that Peter Lynch was shooting for was a stock that appreciated 900% or more in value from the initial purchase price.

Now you might be thinking what the heck 300% sholdn’t that be only a triple? Well this is a common mistake that many people make when thinking about stock performance – remember a 100% increase means your stock doubled. So a 200% increase means your stock tripled and so on. A 1000% increase is actually an 11 bagger. Basically subtract one from my stock went up X times and you have the percentage.

Anyway the whole goal of investing to achieve that infamous ten bagger that Peter Lynch referred to is all about having the correct long term mindset when it comes to stocks. If you are an investor who is constantly churning your portfolio over and buying and selling as the stocks move up and down – you will likely never achieve a “ten bagger” Very few stocks appreciate 900% in a short period of time so this means that you would have to purchase your investment and hang onto it for a sufficiently long period of time and resist the urge to cash out or “lock in profits” after your stock had double, tripled, etc.

Well I recently realized I was getting pretty close to having my own ten bagger in Netflix so I decided to take a look at my portfolio and analyze how many “baggers” I had sitting in my portfolio. Here is the list

8 baggers
NFLX (764%)
6 baggers
NFLX (556%)
5 baggers
CSE (480%)
4 baggers
CMG (378, 306%) BH (305%)
3 baggers
DLB (212%) BH (207%)
2 baggers
DLB (190%,112%) BH (154%) BWLD(113%) DWSN (100%) IPGP (112%) QSII (141%,100%) SINA (115%)
1 baggers
DLB (78%) MIDD (75%) PCAR (77%) QSII (89%,75%,57%) UA (82%) ATVI 84% UNH (82%,70%) BWLD (52%) DWSN (60%) EBIX(62%,50%) GWR (60%) MORN (60%) MR (71%) SBUX (62%) VLCM (77%)

So a total of 74 bags if you add them all up. While its nice to be able to grab 14 bags with just 1 stock (somewhat luck) it is also nice to see that 20 other stocks that have become baggers for me.

EDIT: I am starting to question whether there is such a thing as a 1 bagger when it comes to this methodology

You’ll also notice that many of the same stocks have become baggers for me multiple times through multiple purchases. This is because I don’t invest all of my money in a stock at one point in time at one value point. I tend to invest in stocks over time and see if my original thesis is panning out. Sometimes I add more to a stock after it has already run up and in many cases I add to a stock after it has taken a big tumble. This is sort of the opposite of what many people do who throw all of their money in at one point in time and hedge their losses with a stop loss.

I never invest a 1/4th of what I would consider a full investment in a stock at once. This allows me to make my initial purchase right away without waiting for that magical price point. If its a great company and I think has good long term prospects I will buy it. Then I will study the company, follow it and learn more about it. I also greatly leverage the other people doing this same studying at the Motley Fool.

Prime example is Netflix – I originally bought Netflix on Dec 9th, 2005 for $25.94. I then held the stock for about 18 months and was down nearly 30% on the stock before I purchased again at $19.72 on Jun 22, 2007. My only regret is I didn’t stick with the stock on the way up and keep buying it – I always seem to find something else I thought was a better deal and never got back to purchasing the rest of my full position in Netflix – oh well I’m not going to complain too much 🙂

Spiffy Pops
Another interesting investor lingo thing almost happened to me yesterday – something called a Spiffy Pop. Spiffy Pop was coined by David Gardner of the Motley Fool as a stock that doubles in value from your initial purchase price in one trading day.

I bought Netflix for $19.72 on June 22, 2007 and on October 21st Netflix gained $19.54 in that one trading session.

So my stock gained 99.1% in one day from my initial purchase price – had it closed above that magical 100% that would have been considered a Spiffy Pop. It was up as high as $21.79 but ended up closing lower. Again a spiffy pop likely isn’t going to happen for an investor unless he is patient and lets his winners run.

What about you – do you have any ten baggers or spiffy pops?