How to Identify Tenbaggers Like Peter Lynch
Learn how Peter Lynch identified tenbaggers—stocks that multiply tenfold—and how you can find these rare investment opportunities.
Hi! 👋
This time I want to share with you how superinvestor Peter Lynch identied Tenbaggers.
Enjoy!
And remember:
🐦 Follow me on Twitter
💼 Follow me on LinkedIn
🎉 FYI! I’ve just released a series of brand-new, free ebooks designed to help you master the strategies of some of the greatest investors of all time.
📥 Download them below!
DISCLOSURE: The following post contains an affiliate link to a book. As an Amazon Associate, I earn from qualifying purchases, which means I may earn a small commission if you make a purchase through it. This does not change the price you pay. Thank you for supporting my work!
Peter Lynch is one of the most successful and well-known investors in history. As the manager of the Fidelity Magellan Fund from 1977 to 1990, Lynch achieved an average annual return of 29.2%, making it the best-performing mutual fund in the world during his tenure. Lynch is also the author of several influential books on investing, including One Up On Wall Street, where he introduces the concept of a "tenbagger"—a term that has become synonymous with extraordinary investment success.
In this post, you’ll learn about what a tenbagger is, how Peter Lynch identified potential tenbaggers, and the strategies investors can use to find these rare but highly rewarding opportunities in their own portfolios. By the end of this post, you’ll have a deeper understanding of the characteristics that define tenbaggers and the mindset needed to uncover them.
TL; DR
A tenbagger is a stock that increases in value by ten times or more from the original purchase price.
Lynch identified tenbaggers by focusing on undervalued companies with strong growth potential, often found close to home.
Look for companies with scalable business models, strong competitive advantages, and opportunities for long-term growth.
Patience and thorough research are crucial; tenbaggers often require time to realize their full potential.
Understanding the Tenbagger
The term "tenbagger" was coined by Peter Lynch to describe a stock that returns ten times its original investment. For example, if you buy a stock at $10 per share and it eventually rises to $100 per share, that stock would be considered a tenbagger. The concept is appealing to investors because identifying just a few tenbaggers in a lifetime can significantly boost overall portfolio returns.
Lynch’s fascination with tenbaggers began early in his career when he realized that the key to achieving outstanding performance was not just about finding good investments, but about finding those rare opportunities where a company’s growth could far exceed market expectations. These are the stocks that, with patience and the right conditions, can multiply many times over and create substantial wealth for investors.
How Peter Lynch Identified Tenbaggers
One of Peter Lynch’s most famous pieces of advice is to "invest in what you know." He believed that everyday experiences could lead to extraordinary investment opportunities. In One Up On Wall Street, Lynch emphasized that potential tenbaggers could often be found close to home—in the companies and products that consumers interact with daily.
Peter cited numerous examples of tenbaggers that were hiding in plain sight. For instance, he mentioned companies like Dunkin’ Donuts, McDonald’s, and Pep Boys—companies that many people were familiar with in their everyday lives. Lynch argued that by simply observing the success of these businesses in their local communities, investors could get a jump on Wall Street analysts and identify tenbaggers before they became widely recognized.
Look for Growth Potential
A critical aspect of identifying tenbaggers is recognizing companies with significant growth potential. Lynch focused on companies that were still in their early stages of growth but had the potential to expand rapidly. These were often companies with scalable business models, meaning they could grow revenues without a corresponding increase in costs. This scalability was crucial for a company to multiply its earnings—and its stock price—over time.
One example Lynch provides is Automatic Data Processing (ADP). ADP wasn’t a flashy tech company but instead a provider of payroll processing services. What made ADP a tenbagger was its ability to scale its operations effectively. As more companies outsourced their payroll processing, ADP was able to grow its revenues significantly without a proportional increase in expenses, leading to substantial profit growth and, ultimately, a dramatic increase in its stock price.
The Traits of a Tenbagger
Peter outlined several key characteristics that potential tenbaggers tend to share:
Scalability: The company should have a business model that allows for significant revenue growth without a corresponding rise in costs.
Strong Competitive Advantages: Tenbaggers often have some form of durable competitive advantage, whether it’s brand recognition, proprietary technology, or a unique product offering that’s hard for competitors to replicate.
Undervalued by the Market: Tenbaggers are typically undervalued by the market, either because they’re not yet on the radar of most investors or because they’ve been misunderstood or overlooked.
Strong Management: A capable and visionary management team is often a critical factor in turning a good company into a great one. Tenbaggers usually have leadership that can effectively guide the company through various stages of growth.
Early in Growth Cycle: The best tenbaggers are often companies that are still in the early stages of their growth cycle, with plenty of room to expand.
Consumer-Centric: Many tenbaggers are companies whose products or services resonate deeply with consumers, leading to sustained demand and brand loyalty.
The Mindset Required to Find Tenbaggers
Lynch’s approach to finding tenbaggers wasn’t just about knowing what to look for—it was also about having the right mindset. One of the most important aspects of his strategy was patience. Tenbaggers don’t materialize overnight; they require time to grow and realize their full potential. Peter often held onto his tenbaggers for years, resisting the temptation to sell when the stock had doubled or tripled.
He also emphasized the importance of doing thorough research. Before buying a stock, Lynch would dive deep into the company’s financials, management team, industry dynamics, and competitive landscape. This research helped him build the conviction needed to hold onto a stock through the inevitable ups and downs of the market.
Peter was also a big advocate of diversification. He understood that not every stock would become a tenbagger, so he spread his bets across a wide range of companies. This approach increased his chances of finding a few tenbaggers in his portfolio, which would then drive overall performance.
Summary
Peter Lynch’s concept of the tenbagger has become a cornerstone of value investing. A tenbagger is a stock that increases in value by ten times or more, and identifying these rare opportunities can lead to substantial wealth creation. Lynch’s strategy for finding tenbaggers involved looking for undervalued companies with strong growth potential, often hidden in plain sight. These companies typically have scalable business models, strong competitive advantages, and are early in their growth cycle.
Download this post 👇
Got a burning question or a topic you're curious about? I'd love to hear from you! Please drop a comment 💬 below or shoot me an email 📧 at grahamqualityinvestor@gmail.com