Finding a UK share that can go up 1,000%, that is, ‘ten bag’, requires a mix of luck, research, and a lot of patience I think. Yet of course there are UK shares with massive growth potential. Here’s how I go about rooting out such shares.
Note of caution
Before we get to the exciting bit, it’s worth noting that finding and then holding a 10-bagger through ups and downs is pretty rare.
It’s also not worth taking exceptional risk in order to try and find 10-baggers because the maths shows that losses can really hurt a portfolio’s return. For example, a 50% loss requires a 100% gain just to get back to breaking even. This explains why Warren Buffett’s famous first rule of investing is: don’t lose money.
Also, apart from during exceptional periods of volatility and with perfect timing, it’s unlikely any share will earn this kind of return in a short time period. That’s why I think it’s worthwhile looking for shares that can gain value over a period of at least five years. This is about quality investing and patience, not about gambling and pure speculation.
All this to say, I believe that with a strategy, the right mindset, and an eye on the risks, it should be possible to find shares that can appreciate by 1,000%.
Finding UK shares that can 10 bag
I think it is better to choose companies with good prospects rather than getting too focused on the current share price. It comes down to picking high-quality companies, ideally in an industry that investors could get excited about. Finding a winner within an emerging technology field could be one good way to find a UK share capable of 10 bagging. My personal favourite sector is artificial intelligence, which I think is generally underutilised but has massive potential. It’s why I own shares in IXICO, for example.
Buying shares when a company has been losing money but is approaching profitability could also be a good strategy. More generally, it can take most investors a while to cotton on to a company’s improving prospects, especially if it is a smaller company. This creates an opportunity for a savvy investor to make money by doing research into whether a turnaround can be sustained.
To find the next Renew Holdings, FW Thorpe, GB Group, or IMPAX Asset Management, which have all 10-bagged over the last two decades, I think this is the way to do it. Find shares with strong growth prospects in an industry where sentiment will be very positive, make sure they are a leader in that industry, or back a turnaround before other investors get wind of the improvement. Then make sure the improvement will keep leading to earnings growth.
Deciding between a stock that is a nearly-ran and a true winner separates the best growth investors from the rest. Good luck finding shares that multi-bag! It’s possible — but it’s also harder than it sounds.
Andy Ross owns shares in IXICO. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.