Wit hout a doubt t he highlight of what I do is meeting very smart people who, during a random chat, make a comment that absolutely resonates with me and makes me a smarter trader and investor. Last week I had just one of those moments with Kevin Algeo, head of IG South Africa, when he said: “For a stock to be a ‘10-bagger’, f irst it has to be a onebagger.” It was a boom moment for me.
We’d been chatting about the crisis of 2008 and how people had lost a large amount of money and how many of those losses resulted in people trying to pick the bottom of a falling stock – a stock that just kept on falling. We were talking small- and mid-cap stocks and his comment was that the lesson he learnt in 2008/09 was to only buy these small- and mid-cap stocks when they were at least 50%, or ideally 100%, off the crisis lows.
Many would comment that waiting for the stock to pick up that much means that there is no money left to be made, but that’s where his comment r e s onate s . This is completely correct: if a stock is going to rise tenfold it f irst has to double in value.
Most investors would stay away from a stock that has risen 100% off recent lows. They would worry t hat t here was no more profit to be made; yet, at the same time, they’re looking for those 10-baggers that’ll rise 1 000% over time. The point of waiting for the 100% gain before buying is that it gives a l evel of certaint y that the fall has stopped and, equally importantly, that other
*The writer owns shares in Capitec.