No rules:
Most of us would love to see a multi-bagger in our portfolio.
And why not?
There’s one multi-bagger that has outperformed beyond the wildest dreams of investors.
38% per annum - for 23 years.
Rs 1 lakh invested at the start would have turned to Rs 15.76 crores today.
Yes, we’re talking about Amazon.
And the somewhat sad part of that stock’s story is, almost no investor has enjoyed the stellar return (except Jeff Bezos and a small number of others who work there and aren’t really investors as such).
Why?
Because the journey of the stock was as wild as its returns.
There were many other years when the stock took a massive beating.
To top this, the company wasn’t making any profits for decades.
There is a famous early interview of Jeff Bezos where a journalist appears very skeptical of his company’s operations.
Many analysts called it “not a viable company” for years altogether.
There were times when its stock was down 95%.
If you invested around 2000, your stocks would be in the red for 8 years.
Would you have held for that long?
Think again, would you have held on to it when it fell 95%?
Probably not.
So now the question is, how exactly do you hold on to such a stock?
What signs should you look for in the company’s balance sheets?
What are the most important ratios?
What do you look for?
Let us digress a bit.
A little more than a century ago, if you broke your bone, the cure for it would be surprisingly similar.
Bones tend to break in a manner that is surprisingly similar in people of similar age.
The bones would be realigned, plaster would be applied, and quite a few weeks later, your broken bone would have fused into one piece again.
Easy.
But hairline fractures were difficult to trace.
The pain would remain for long and nobody would be able to find the source of the pain.
With time, the crack or hairline fracture would heal.
As you’d imagine, the cracks would never heal properly because not much was done to realign and make the bone fully straight.
Even with big fractures, the healed bones wouldn’t always turn out to be as good as before.
Wilhelm Roentgen, a physicist in Bavaria had been lost in thought. He was experimenting with cathode ray tubes.
He wanted to see if a certain kind of light would pass through glass.
The light managed to clear glass and hit a fluorescent screen. Mind you, the screen just happened to be there. It wasn’t really a part of his experiment.
Observing what happened on the screen, he realized that the mysterious light that he wasn’t even able to see could pass through glass and many other objects.
But it failed to pass through hard objects.
And that is how X-rays were discovered.
Within a year, hospitals across the globe were using it to treat a bone injury, kidney stones, bullets, you name it.
He got a Nobel prize in physics in 1901 for this.
So, how did he do it?
Well, he didn’t really have a plan. It just happened.
When you’re looking for a stock that shoots from nothing to insane prices, there is no rule book.
There are no signs and numbers that you can look at that guarantee success.
It's very difficult to bet on success unless it is in hindsight.
And this is why, looking for the next Amazon cannot be your only investment strategy - because it is mostly not going to work out.
For most investors, investing in stocks that make sense and staying away from stocks that don’t make sense is the best strategy.
There are many investors who have made good money by investing in the Amazon stock investing in it around 10 years ago - when it started to make sense to them.
And the Amazon stock has served them pretty well. 34% per annum in the last 10 years.
Don’t be harsh on yourself for not having seen what practically nobody could see.
Warren Buffet is a big fan of Jeff Bezos. And he never invested in the Amazon stock.
