Your best shot at a 10-bagger

This small cap company could be your best bet for a big winner in the decade ahead. But first you might want to heed this warning.

Our worst investment decisions usually involve three common factors:

  • The allure of great upside,
  • The ‘need’ to act quickly, and
  • The lack of proper due diligence

The vision of huge, unrealistic returns generally leads to hasty decision making, which can lead to losses. In other words, trying to make every investment ‘the big winner’ leads to failure.

To protect yourself against that kind of greed which leads to grief, put your investing returns into perspective. For every Sirius Resources N.L. (ASX: SIR), which is up 6,450% since early 2012, there’s a Mirabela Nickel Limited (ASX: MBN), which is down 85% over the same period.

Although some investors may have achieved that return, Sirius’ is not the sort of realistic earnings anyone can expect over the long term, especially if you are holding a diversified portfolio of stocks.

Legend, Peter Lynch, ‘only’ managed average annual returns of 29% over 15 years, while Warren Buffett has achieved around 20% a year over an impressively long career.

Now, to achieve a 10-bagger in ten years would require a 26% annual return – every year, bettering even the two legends above.

But for those of us willing to give it a shot, small cap companies are your best bet. Telstra Corporation Ltd (ASX: TLS) is unlikely to see its shares at $54 in 2024. That would value the company at $680 billion, around twice the current value of Microsoft.

To maximise your chances of achieving a 10-bagger, you need to focus on smaller companies with strong growth prospects, strong cash flows and solid balance sheets.

One such company could be iProperty Group Ltd (ASX: IPP). iProperty is aiming to emulate the achievements of REA Group Limited (ASX: REA), and is focused on being the go-to portal for real estate in South East Asia, including Malaysia, Indonesia, Singapore and Hong Kong. REA Group is up 6,138% since July 2004, iProperty shareholders (including me) will be hoping it can follow REA.

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Motley Fool writer/analyst Mike King owns shares in iProperty, Sirius Resources and Telstra Corp. You can follow Mike on Twitter @TMFKinga

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