Finding Multi-Baggers

This article has been posted on a couple of other threads, but it has relevance here too. Marcus Padley is a Melbourne stockbroker and investment advisor.

The ones that got away
by Marcus Padley

In 2003 I held 250,000 Oil Search at 60c. Sold them at 70c, they later hit $9.83. That’s $2.5m missed.

I also once held 50,000 Zinifex at 200c (it turned into Oz Minerals). Sold them at 240c. They hit $21.60. That’s another million.

Then we get to the tech boom and my trade in 200,000 Davnet at 40c. Sold at a loss. They went to $6 and the 300,000 Voicenet at 38c. Sold at a small profit. They hit $3.80. That’s another $2.35m missed. These are just some of the ones that got away from me. I am too experienced to regret or care about hindsight observations on share prices but its amusing to consider. No doubt you have your own stories.

The most tortuous element of all the above trades, trades that got sold through my impatience, is that all I had to do to make $5.85 million was to do absolutely nothing at all. Instead I fiddled my way out of it. An activity that any commission driven broker is paid to do, creating activity for activity’s sake, for a commission, when the best course of action was to simply invest, not tinker.

But forget the $5.85 million, my best stock market opportunity came when I was working at Barton Capital and we got a visit from the investor relations guy of some crappy resources stock. It was February 2004. He was a friend, used to work with him at ABN AMRO, so when he asked if he could come in and sell his wares to the broking desk I made an exception and said “Yes”.

Days later the traders were all over it, the volume was rising, the price had ripped up from 1.2c to 3.3c and on momentum alone I had personally bought a million shares at 1.6c. Within a month they were 2.6c. Now I’m no fool and as any stock broker will tell you, when you find yourself standing at the desk punching the air in delight it can only mean one thing, “Sell!” So I did. It was a holiday in Bali for goodness sake.

Now what was that crappy little resources stock called again? Oh yes. That was it. Paladin. I once held a million Paladin at 1.6c. They went to $10.80. That’s another $10.8 million left on the table.

There used to be a bit of a stock broker thing that you needed "X" to retire, but it had to be a lot. Win a million on Tatts Lotto and it doesn’t actually change things. You need more. A million isn’t a million to a retiree, it represents around $50,000 a year of risk free income, so you need more. So we settled on an X of $5m, a number at which we would throw the job in immediately and plan the rest of our lives.

Paladin would have delivered twice as much.

Of course I sold almost all these trades because I had something else to do with the money, because 'fiddling' was my job. But with Paladin I had only risked $16,000, I didn’t need that $16,000, and not needing it is the most essential element of long term patient investment. And all I had had to do was absolutely nothing.

They say it’s better to regret the things you’ve done rather than the things you haven’t and I assume they’re right. You only get one shot. To have had your chance at transformation, even if you didn’t know it, is a thrilling part of ‘playing’ the stock market, realising that you were once in the box seat is an everlasting reminder that at any moment you could be again, and what better challenge could there be than knowing that right now, at this very moment, in the pages of the internet, perhaps even in the pages of Marcus Today, the next Paladin is right in front of you, if only you could see it.
So whilst a compliance hamstrung advice industry is forced to deliver a monotone sermon about average returns, diversification, spreading risk, safe income, portfolio optimization, capital protection, asset allocation, expected returns, efficient markets, rational markets, normal distributions, variance, standard deviation, correlated asset classes and all that other mother jazz, let’s spare a moment for that little bit in all of us, in the advisers as well, that doesn’t want a normal distribution, that doesn’t want the average, that doesn’t want expected returns and that doesn’t want one standard deviation from the norm.

All of us, whether we are allowed to express it or not are always in the stock market in the hope that today could be the day we snag the stock that will return the most unexpected, abnormal, massive return, a return that will make a difference to the rest of our lives.

What we all quietly want is the next Paladin, the transformation, the glory of what is possible, and barring the luck of the casino, the lottery, being born rich or marrying rich, outside of building our own business the stock market is the one place that it is on offer to the intellectual. It is, and remains, the most fascinating financial pursuit of all, and let’s face it, if the last organ to pack it in is the brain, most of us will be doing it long after the other fires have burnt out.


So the message I take from Marcus's story is "Buy right, and hold on".

But how do you select that "right" stock, and why post this on an FGR thread?

That will be the subject of another post.