I have read with great interest of a post
regarding what’s the worst enemy for general investors: failure to hold long
enough of the stocks that have potential to be 10 baggers. Sounds like a good
wisdom to know this but in reality, is it really doable for general investors
to be able to sit tight for their holdings regardless what happens to the
stocks, especially if they are dropping like stone? Sure you may argue, if we
know a stock will eventually be a 10 bagger, I will stay with it regardless up
or down. That’s really the key point. How do you know with certainty in advance
whether Amazon, Apple, or Google would become today’s Amazon, Apple or Google?
Retrospectively everyone is a genius but in reality we are all general human
beings, not genius most of us. Definitely not me!! Believe me, I have tried and
very hard in the past to become a genius who could identify such 10 baggers
when they were still young and immature. Eventually I have given up as I’ve
finally realized that this is fool’s game for most people like me. Success of a
business and its stock is not just its products and/or services but a lot more
than that, including, but not limited to, strategy vision, management ability,
execution and implementation of the business plan, the market and so on. Rarely
an outsider would be able to decisively convince himself/herself that a young and
immature company can overcome all the challenges down the road and eventually
succeed. I can confidently say 99.9% of the people don’t have such an ability
to predict the future of a company precisely. No wonder why most people cannot
sit and hold stocks for long in the rough time. If you are not aware, Amazon
crashed by 95% during its early days. Apple came to the edge of bankruptcy 7
times before Jobs finally saved it. Nearly all the 10 baggers have gone through
near death moment in their life time before becoming truly successful. So if
you ask me how to identify and ride a potential 10 bagger stock, my answer is
simple: forget about it and don’t waste your time!!
Having said that, while I think it is awfully
difficult to identify 10 baggers in terms of stock share appreciation, I do
think it is a lot easier relatively speaking to grow the total value of your
portfolio towards 10 bagger, or 10 times more than your initial invested
amount. How to do it? Simple: just identify the quality dividend high grower
with a long term track record, buy them at good a price, hold them with
dividend reinvestment (DRIP) and then “forget” about them. Giving it sufficient
time (at least 15 years or more), you may suddenly find that your portfolio may
have grown to 10 times more or even higher. Don’t believe it? See my mathematically
proven case study on this. Sure, it is still a daunting task to
identify such stocks but I’d say it is a lot easier than thought. Long term
dividend growers are generally those that have well established their business
with a track record and their brands or services are likely already household
names. Due to the nature and maturity of their business, likely they won’t grow
fast anymore but they usually can mint tons of cash and therefore can reward
shareholders with increasing dividends. The chance of such value businesses
going out of business is probably many times less than that of young and fast
growing companies that are still facing tons of unknown challenges. As
demonstrated in my case study, the beauty of such a DRIP investment is that you
really don’t need to worry about the up or down of the stocks’ prices as long
as their business is still performing fine and they still grow their dividends.
Actually lower stock prices can even benefit you more and accelerate your
process to become a 10 bagger for this kind of stocks. So it is a kind of
situation, “Heads I win, tails I still win”. I can hardly see anything better than this low risk, low maintenance,
and low stress long term investment strategy for 10 baggers with near certainty of
success. This is one of my main mandates
to share such kind of quality dividend growers with my Deep Woods Family
members. I'm sharing a couple of ideas this weekend. Hopefully with a little bit of my efforts, my DW Family can be much better equipped with a solid army of dividend growers to generate increasing income nonstop for the rest of our life! If you are
interested to learn more, send me an email: dwmt19@gmail.com
By the way, you may notice that I use
Microsoft as an example in my case study. Microsoft is among the first few dividend
stocks, for which I was so convinced to be a great long term DRIP stock that I
had been pounding the table several times when it was trading below $50 several
years ago (see here with links to previous posts on MSFT). For myself, I started to accumulate its shares when it was in $20s
almost 10 years ago and bought more till $50. I honestly wish it could stay as
low as $20s or $30s forever as “dead money” which would have made me a lot more
money down the road with DRIP. “Unfortunately”, it has revived itself and
become a new growth stock in the past few years. While my early shares have
become 5 baggers and likely will become 10 baggers as well, my DRIP compounding power has been
substantially reduced with such kind of fast share price appreciation. Its
recent winning over Amazon for a $10 billion Cloud contract from Pentagon
(Department of Defense) will substantially further enhance its leading position
in the fast growing Cloud technology sector. The only “downside” for me is that
it’s a hopeless wish now to expect Microsoft to become a pure value stock again
any time soon. So I'm "forced" to hold a value stock with fast growing power. I just wish the total return from this hybrid can be bigger at the end!
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