A new Feb 2025 study, The Alchemy of Multi-bagger Stocks, challenges conventional investing wisdom. Analyzing 464 companies with 10x-plus returns, the research found that factors like revenue and earnings growth were irrelevant. Instead, the strongest predictor was free cash flow yield, proving that a company’s ability to generate cash is more important than its reported profits. The study also highlighted the importance of small size, cheap valuations, and contrarian timing—buying stocks near their lows rather than joining the crowd. This research offers a powerful new framework for finding truly exceptional investment opportunities
Investing Lessons
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‘INVESTCON 5’ – Trim Growth and Get Defensive
Howard Marks reminds us, true success lies in understanding the critical difference between price and value. Price is what you pay for an asset—a number driven by market sentiment, optimism, and fear. Value, on the other hand, is what you get—an asset’s inherent worth based on its ability to generate future cash flows. While markets may act as a voting machine in the short term, pushing prices to extremes, they behave like a weighing machine over the long run, eventually reflecting true value. By focusing on value over price, investors can avoid costly mistakes.
Patience Alone Doesn’t Get it Done
Over the past ~40+ years – the S&P 500 Index has returned an average of ~9.3% annually exc. dividends (i.e., 171.6 Jan 1985 to 5,979.5 Jan 2025). If we limit that to the past decade (from 2015) – that avg annual return increases to 11.4% (excluding dividends). But what matters most is (a) the price you pay; and (b) when you get out. Sitting tight for 10 years does not guarantee a 10% return…