My take on this is that generally I look to exclusively hunt the highest potential investments I can find, but I can't say as to which ones will work out so I tend to size these equally and let them run so long as the price doesn't get way too far ahead of the business or the business performance doesn't deteriorate in which case I'd look to find replacements.
There in enduring traits between the best of them that can assist you narrowing your search, so the situation isn't as dire as this chart makes it seem, as with some diligence and a high bar, the hit rate could be much improved.
If you want to do some research on this there is an abundance of resources out there to refer to. Obviously there is 100 baggers by Chris mayer and 100 to 1 by Thomas Phelps. Then there is intelligent fanatics by Ian Cassel. Also I really like motilal Oswal research on 100x stocks as well.
Good luck in your search everyone
Just remember that you'll likely never find them (and certainly won't hold onto them) if you aren't specially looking for them
I thought this graph (courtesy of Twitter) was interesting.
A few observations:
- Multi-baggers are rare. Maybe returns over a different timeframe would be different but I think the heavy left skew towards negative and underperformers versus mean would remain.
- Conversely picking companies that make life changing returns is really hard. They represent a very small relative number of listed companies.
- BUT, given the extent to which those few companies contribute to the overall market's performance it would be very hard to meet market returns unless you do have exposure to those companies.
- This goes some way to explaining why passive strategies are sometimes found to beat active ones i.e. broad based ETFs do capture companies in that far right hand bar. They capture companies in other bars as well but a few big winners can more than offset lots of ordinary ones.
[Disc: Mostly active strategy so do as I say, not as I do]