Ian Cassel has written an excellent article “ The Art of Holding” where he talks about importance of sticking to big winners in your portfolio. Cassel points out that stock rarely perform in the time frames we predict, and it’s why the market only works for investors that have a long-term portfolio focus. Performance is never linear, up and to the right, year after year. You sometimes have to hold onto a stock for a few years before it goes up 100% in 3 months.
Sustainable multi-baggers have three characteristics: Long-term revenue and earnings growth with little to no dilution. When you are holding onto an investment ask yourself – Is this business growing and making more money per share than it did a year ago, two years ago? In my real-life example above the company’s business is almost double the size it was 2.5 years ago. Yes, the stock hasn’t gone anywhere but the business is doing really well. I have no problem holding this stock. If the business wasn’t performing, I would sell. Successful investors can differentiate business performance from stock performance and can take advantage of those investors who can’t.
In the book “Art of Execution” Lee Freeman-Shor points out that the most successful investors have one thing in common: the presence of a couple of big winners in their portfolios. Any approach that does not embrace the possibility of winning big is doomed. – The fact is, most of us will find it difficult to emulate these investors because we feel the need to do something every day. We look the price charts, listen to the latest news on TV and fool ourselves into believing we could add value from making a few trades here and there. It is very hard to do nothing but focus on handful of companies every year, only researching new ideas on the side.
Every multi-bagger will have long periods (even years) of stagnation as fundamentals backfill, old shareholders get bored, and new shareholders enter. Just like a fine wine, sustainable multi-baggers often take their time to ascend and develop. Cassel concludes that if you’re invested in great businesses that continue to grow and earn more money, don’t let lulls in stock price and boredom scare you out of them.
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