The Mindset For Picking Stocks That Grow 10,000%
Picking stocks that grow by 100 times is more art than science. It only comes with a lot of research in a field coupled with a healthy dose of critical thinking that puts facts into perspective.
I was browsing Reddit recently and noticed a few newbie questions popping up here and there on how to get started in the stock market.
There are obviously different approaches to it, and you’ll eventually need to pick one that works best for your character and your circumstances but I thought it wouldn’t hurt sharing mine since my results can speak for themselves. I’m the ambitious type that aims for stocks that grow 100x.
Stock Picking Is All About Clear Thinking
Success in stock investing starts in the head. When I pick a stock I think of the business behind it. I think of the CEO, the company culture, the brand, the products and what customers have to say about them, but also in relation to competing solutions (if there are any).
I also think of how it would be a part of the ecosystem 15 years down the road and how it would have grown by then. I read through what vision the company has for itself and if it’s indeed executing on it. Companies can formulate a fancy mission statement in their annual reports but what matters is that they’re living it. It needs to have a high probability of coming to fruition based on what can be observed today.
Out of that vision comes conviction to hold. Both are super important. It requires a little daydreaming to visualize the cityscape and the people of the future and envisioning why the company is relevant in that scene.
I’m not sure if you’re my generation, but I was blown away by the skyline in The 5th Element movie. Pick any skyline you remember from a sci-fi movie for that matter. I visualize the brand on buildings, its products in people’s homes or lives. I know that this sounds borderline mad, but that’s how I map out the world. I’m a very visual type of person.
Stocks That Have Megabrand Potential
Over 17 years ago, I invested in Apple because I knew they catered to raving and loyal customers and a spirit for quality that Microsoft couldn’t match. The rest is history.
6 years ago I saw the same thing happening with Tesla. When was the last time people queued up to buy a car?
It obviously can’t be an existing megabrand but a company that has the potential to become one. It’s often a misunderstood underdog. You may not hear it in mainstream media, or would only hear condescending reports about it. That’s what makes picking stocks that grow 100x so hard. You get misleading opinions non-stop that intuitively make you dismiss an opportunity because you don’t want to be associated with it. Dig deeper.
The more misunderstood the better because that’s where your arbitrage opportunity lies.
Once the mainstream picks it up and identifies the mispricing, valuation adjustments result in a spectacular price appreciation. This is what happened to Tesla when it went from car manufacturing analysts to AI and robotics analysts who slap very different multiples on it. Suddenly, investment firms started to issue way higher price targets.
See your holdings as individual S-Curves (borrowed from The Innovator’s Dilemma by Clayton Christensen) that grow and mature over years. When a growth story matures over 5 or 10 years, you can consider redistributions in your portfolio. By the time, you have likely identified next-generation underdogs that you want to ride on.
Differentiate Real Catalysts From Hypes
People tell you to buy and sell whatever they caught on CNBC, or try to time the exit to book a 20% profit. It’s all nonsense. You’ll never make a meaningful fortune if you’re always quick to sell.
Focus on the company behind the stock price and don’t care so much about price fluctuations. I think a lot has to do with the brand and how it rings in people’s ears.
Prices always gyrate around a growth trajectory that’s impossible to time or calculate. I also don’t waste my energy with cash flow projections. I’ve been in talks with value investors before and seen their Excel sheets that neatly extended cash flow statements 10 years into the future. All their numbers turned out to be wrong. The world is dynamic and it’s impossible to model this with any accuracy.
Stocks regularly drop 60% top to bottom but I just don’t care. I hold if the vision remains true.
People and businesses change with catalysts. They also come and fade away which is why you can have an advantage over older investors. You can pick your own winners.
15 years ago it was Apple riding the catalyst of people going mobile. Today Tesla is riding the catalyst of people going sustainable. These are real societal shifts. Identify significant catalysts early, then pick the company that will most likely thrive in them. These are the stocks that will rise 10,000% and more.
You can also do it in reverse when you see a stock: What catalyst are they banking on? If you can’t tell that story in your head, forget about it.
Seize Opportunities With Conviction
Catalysts don’t appear every month or every year but perhaps one or two in a decade. As the world accelerates, you may find multiple at the same time. What I’m saying is that such opportunities don’t come often so when they do appear, you must grab them by the balls and go big. Don’t waste your time with 10% or 20% kind of profits but be bold.
Conviction can’t be borrowed from someone else. It must grow from within you.
Let your portfolio represent your best guess about the future.
Published Tue Aug 24 2021 (last modified Mon Sep 19 2022)