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Finweek English Edition - - INVEST DIY -

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.

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