Hall of Fame investor Ralph Wanger once remarked that baseball fans remember how many home runs Babe Ruth hit in his best year, but they usually can't recall how many strikeouts he had. That keen insight can be central to a successful investing approach.
Great investors like Peter Lynch and Fool co-founder David Gardner have understood this principle intuitively. Indeed, Lynch is responsible for coining the term "10-bagger," and he once remarked, "all you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out."
A successful investing career can be built by looking for outstanding businesses that will deliver solid returns over the long term. Some selections might be smaller companies that have the potential to become 10-baggers over time. Others will be larger, more-established companies that can go up two or three times in value over a five-year period. In each case, take a patient, methodical approach toward meeting your goals.
And then only sell if there is a significant change in your investment thesis. It's difficult to create significant value by trading in and out of stocks.
How to achieve your goals
Limiting yourself to a particular style or approach can be claustrophobic. It's okay to let your winners run. Take Apple for example. The company was right before all of our eyes in broad daylight, but some people avoided it or sold too early because it was "overvalued." Others continued to hold these fantastic businesses, and were rewarded with multibaggers.
Here are some tactics you could deploy in finding outperforming investments:
- Find young companies with exciting business models that can change the world.
- Scoop up companies that benefit from technological or economic trends.
- Prudently invest in outstanding businesses that know how to create value over time
- Finally invest in a proven businesses that appear to have stumbled temporarily
There are many ways to invest. In each case, finding a method that works and that suits you and sticking to is the most important thing. Lynch and our own David Gardner have built astounding track records using some of the tactics above. Perhaps they'll work for you.
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The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.
A version of this article originally appeared at fool.com