What is a 'Tenbagger' An investment that apprecia
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Posted On: 03/24/2018 10:13:02 AM
What is a 'Tenbagger'
An investment that appreciates to 10 times its initial purchase price. The term “tenbagger” was coined by legendary fund manager Peter Lynch in his book "One Up On Wall Street". While “tenbagger” can describe any investment that appreciates or has the potential to increase ten-fold, it is usually used to describe stocks with explosive growth prospects. Lynch coined the term because he is an avid baseball fan, and “bag” is a colloquial term for base; thus “tenbagger” represents two home runs and a double, or the stock equivalent of a hugely successful baseball play.
Peter Lynch identified and invested in numerous tenbaggers when he was manager of the Fidelity Magellan Fund from 1977 to 1990. As a result, the Magellan Fund grew from $18 million in assets when Lynch took it over to $19 billion when he left in 1990. Over this period, Lynch achieved a 29.2% average annual rate of return, which meant that $1,000 invested when Lynch started managing the fund in 1977 would have grown to $28,000 by the time he left it in 1990.
Lynch used certain criteria for picking a stock; for example, that it should have a Price/Earnings (P/E) ratio below the industry mean and less than its five-year average. He also looked for stocks where the five-year growth rate in operating earnings per share (EPS) was high but below 50%. His reasoning was that such earnings growth rates were not only unsustainable, but companies growing at this pace would attract competition.
In a PBS interview in 1996, Lynch cited Wal-Mart as an example of a tenbagger that investors had plenty of time to buy. He said that investors who had purchased Wal-Mart 10 years after it went public in 1970 would have still made 30 times their money.
Like most of the biggest and best companies, Wal-Mart is a perfect example of a stock that’s much more than a tenbagger. An investor who was fortunate enough to buy just 100 shares when Wal-Mart first sold shares to the public at $16.50 in 1970 would have amassed 204,800 shares by 2013, thanks to the company’s 11 two-for-one (2:1) stock splits since 1970. The initial $1,650 would have been worth a staggering $15 million by 2013, for a return of 9,090 times the initial investment.
An investment that appreciates to 10 times its initial purchase price. The term “tenbagger” was coined by legendary fund manager Peter Lynch in his book "One Up On Wall Street". While “tenbagger” can describe any investment that appreciates or has the potential to increase ten-fold, it is usually used to describe stocks with explosive growth prospects. Lynch coined the term because he is an avid baseball fan, and “bag” is a colloquial term for base; thus “tenbagger” represents two home runs and a double, or the stock equivalent of a hugely successful baseball play.
Peter Lynch identified and invested in numerous tenbaggers when he was manager of the Fidelity Magellan Fund from 1977 to 1990. As a result, the Magellan Fund grew from $18 million in assets when Lynch took it over to $19 billion when he left in 1990. Over this period, Lynch achieved a 29.2% average annual rate of return, which meant that $1,000 invested when Lynch started managing the fund in 1977 would have grown to $28,000 by the time he left it in 1990.
Lynch used certain criteria for picking a stock; for example, that it should have a Price/Earnings (P/E) ratio below the industry mean and less than its five-year average. He also looked for stocks where the five-year growth rate in operating earnings per share (EPS) was high but below 50%. His reasoning was that such earnings growth rates were not only unsustainable, but companies growing at this pace would attract competition.
In a PBS interview in 1996, Lynch cited Wal-Mart as an example of a tenbagger that investors had plenty of time to buy. He said that investors who had purchased Wal-Mart 10 years after it went public in 1970 would have still made 30 times their money.
Like most of the biggest and best companies, Wal-Mart is a perfect example of a stock that’s much more than a tenbagger. An investor who was fortunate enough to buy just 100 shares when Wal-Mart first sold shares to the public at $16.50 in 1970 would have amassed 204,800 shares by 2013, thanks to the company’s 11 two-for-one (2:1) stock splits since 1970. The initial $1,650 would have been worth a staggering $15 million by 2013, for a return of 9,090 times the initial investment.
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