On multi-baggers

This got posted on a thread, but what I was writing was more general, so I gave it a new thread.

I think the only SaaS company in my portfolio that Veeva has not out-performed is Shopify. I have something like a 21 bagger in Shopify and Only a 5 bagger in Veeva Systems…there are not many stocks that one could have invested in during the last 5 years that could beat out Shopify, so I forgive Veeva Systems for only being a 5 bagger within the past 5 years or so.

Hi Starrob, Let’s see, as of Monday:

Okta was a little over a 7 bagger in just two and a half-years since I bought it at $29.95

Alteryx was a little over a 6 bagger in about the same two and a half-years since I bought it at $27.72

Zoom is “only” a 3.5 bagger in just over one year since I bought it at $77.63. That means it needs to rise just 44% total in the next four years to be a 5 bagger in five years, so we can probably count that as a sure thing (at least).

But what really counts is how your entire portfolio has done, not individual baggers. As I pointed out in my end of June summary, my portfolio results (posted every month so people can verify them) compounded to almost a 9-bagger on the entire portfolio in the past three and a half years. That’s why individual stock baggers are irrelevant. You can ride your Shopify from a 20 bagger to a 25 bagger in a year (and be even prouder of it), but that would only be a 25% gain. If you could put the money into a company that would only give you a 2 bagger in the same time, that would be a 100% gain, and would be four times as much gain for your money (although less to brag about).

Best,

Saul

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. If you could put the money into a company that would only give you a 2 bagger in the same time, that would be a 100% gain, and would be four times as much gain for your money (although less to brag about).

Even less to brag about if you have a 100 or more stocks in your portfolio. It really is about your portfolio and less about what one or two stocks do to your portfolio. That is why a concentrated portfolio is so much better than a portfolio that is less concentrated. Stick to your best ideas.

Andy

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For a $1 stock, a one bagger gets you another dollar and 100%. Congratulations!

A two bagger gets you another dollar and 200%, BUT only 50% gain on the one bagger. Still great!

A three bagger gets you another dollar and 300%, BUT only 33% gain on the two bagger. Very good!

A four bagger… yada, yada, BUT only 25% gain on the three bagger. No complaints here!

But, if I’ve got this right, it goes down steadily and after a three or four bagger I might want to look for something else that will likely gain more than 25%.

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great info Saul, as always. To take your example one step further, another easy way to think about “baggers” is to simply think about the numbers themselves, as follows


"bagger" transition    % increase         example                   
1 to 2                   100%             your $1k grew to $2k      
2 to 3                    50%             your $2k grew to $3k     
3 to 4                    33%             $3k to $4k
4 to 5                    25%             $4k to $5k    
.
.
30 to 31                  3%              $30k to $31k
99 to 100                 1%              $99k to $100k

compared to doing something like this:


initial investment $1k
1 to 2                   100%              your $1k grew to $2k 
sell and move to better opportunity company
1 to 2                                  your $2k grew to $4k
sell and move to better opportunity company
1 to 2                                  your $4k grew to $8k
etc.

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But what really counts is how your entire portfolio has done, not individual baggers. As I pointed out in my end of June summary, my portfolio results (posted every month so people can verify them) compounded to almost a 9-bagger on the entire portfolio in the past three and a half years. That’s why individual stock baggers are irrelevant. You can ride your Shopify from a 20 bagger to a 25 bagger in a year (and be even prouder of it), but that would only be a 25% gain. If you could put the money into a company that would only give you a 2 bagger in the same time, that would be a 100% gain, and would be four times as much gain for your money (although less to brag about).

I would add that thinking in terms of baggers isn’t helpful. One of the Gardners gave a catchy name, “Spiffy-Pop,” to a bagger in a day, which has had the unfortunate side-effect of focusing people on such metrics.

I prefer to use CAGR, Compound Annual Growth Rate, which can be calculated in Excel via XIRR, as my metric. CAGR captures the time element of your gains, which is hugely important.

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CAGR is the way I look at it. Individual baggers mean very little to me.

I’d rather see that my portfolio has returned XX% annually since whatever date I choose.

It’s also a more accurate depiction of my overall portfolio’s performance since it includes all cash flows into and out of the portfolio as well as the (lack of) return on my cash position.

And while not as impressive as others here, 34.28% CAGR since 12/31/2015 isn’t too shabby.

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What is really valuable is not your percentage growth but the real (inflation adjusted)dolar growth of the whole portfolio.
You can’t spend percentages or put them away or early retirement. Percentages are very good for showing that you are on the right track. But maybe not if you concentrate on return of 1 or 2 stocks alone , where luck may have been as important as skill.

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“…It’s also a more accurate depiction of my overall portfolio’s performance since it includes all cash flows into and out of the portfolio…”

I may just be reading this wrong but excluding cash flows is what you want, right? This is the Time-Weighted [Internal Rate of] Return (TWIRR or TWR). If I add $20k to a $100k portfolio, I can not consider the 20% jump a part of my performance managing the portfolio. If the portfolio stays at the new balance of $120k that is actually a 0% return.

In the name of learning, I’ll put some ignorance in to public view and admit…
CAGR confuses me a little and I’d love to hear some insight. Is CAGR just an annualized IRR (Money-Weighted Internal Rate of Return)?

CAGR has a weird smoothing effect(?) as it applies numbers to full years. This article explains it so:
https://www.investopedia.com/terms/c/cagr.asp
What Is Compound Annual Growth Rate – CAGR?
Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment’s lifespan.
…compound annual growth rate smooths the investment’s performance and ignores the fact that 2014 and 2016 were so different from 2015. …
The compound annual growth rate…can help an investor compare alternatives for their capital or make forecasts of future values.

I read that first part and wonder why I should care. Though again, I expect this is just ignorance speaking.

I get that it is nice to include the anchoring effect of a cash position (though I suppose you can just call it “USD”, use inflation as the growth rate and buy/sell at some fake daily “price” - this would show it as the badly performing position that the dollar really is!), but this seems overly complicated to me…perhaps because I am usually fully invested and just ignore the small balance.

Why not just keep it “simple” and use TWR. (I put “simple” in quotes because it isn’t real simple to figure out, but can be done in a spreadsheet.) Why do you need more? You can still do TWR over multiple years and then annualize it.

Does it just come down to comparing portfolio management performance versus the performance of an account? Is the later helpful outside of the managed fund world?

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