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It’s every investor’s dream: making a tenfold return on his investment.
All-star mutual fund manager Peter Lynch coined the term “10-bagger” to describe these investments. Lynch had a knack for finding big winners, which helped his Fidelity Magellan (FMAGX) mutual fund grow its assets to $19 billion.
Finding great companies, buying their stocks and holding them for 1,000% returns doesn’t happen often. In fact, I’ve done this just twice in my career.
The first time was more than 10 years ago when Bankrate (NYSE: RATE) shares soared from $1 to $12 in just a few years.
I’m thrilled to report that I accomplished this same feat again last week. Netflix (NASDAQ: NFLX) shares surged 18% on Thursday, to close at nearly $116. Another strong earnings report caused the huge jump in Netflix stock.
That set an all-time high for the stock. And in my Million Dollar Portfolio real money newsletter service, my gains reached as high as 1,048%. Click here to discover my biggest profit opportunity of 2016.
Now, I’m not telling you about my Netflix success to brag. Instead, I know there are a couple hugely important lessons to learn from this spectacular investment. And I want to take a moment to shares these lessons with you, in hopes that you’ll join me for our next 10-bagger.
Lesson No. 1: Make Contrarian Investments
It’s difficult to buy companies that are disliked. Whether it’s an out of favor sector or an underperforming stock, it’s difficult to bet on a loser. But it’s often the disliked and overlooked stocks that offer the best opportunities.
My December 2011 issue of Million Dollar Portfolio (formerly known as the 100k Portfolio) was titled Buying the World’s Stupidest Company. Just before my buy recommendation, Netflix CEO Reed Hastings had made some terrible decisions. The result was a 75% drop in the stock in a few months.
But I was able to look past the company’s mistakes. And I saw an online streaming video company that was on the cusp of toppling the entire cable TV industry. At the time I recommended Netflix, the market cap was just $4 billion. That seemed downright cheap for a company with such bright growth prospects.
So I pulled the trigger, and bought Netflix in December 2011. At the time, Netflix stock was trading at $71 or just $10 on a split adjusted basis (last week Netflix split its stock 7-for-1).
Now, my original research report on Netflix has only been available to my paying subscribers. But to celebrate my 1,000% profits in Netflix, I’ve decided to publish the entire original report on my website.
If you’re interested in understanding the analysis behind this contrarian stock recommendation back in 2011, then you need to check out this research report. It’s available – completely free and without registration – by clicking here now.
Lesson No. 2: Take Profits Along the Way
Taking profits is a key factor that contributes to making successful investments. Locking in profits greatly reduces risk and helps protect capital.
With my Netflix position, I sold some shares as the stock price rose. You’ll notice that I cashed out periodically, locking in profits and generating capital for other investments. My sales included the following:
- January 2013: Locked in a 130% profit
- November 2013: Locked in a 374% profit
- July 2014: Locked in a 495% profit
In hindsight, it would have been best to hold on to my entire Netflix position. If I’d done so, my original $7,100 investment would now be worth nearly $80,000. But I’ll never regret taking profits along the way. Smart investors know that locking in gains reduces risk and helps generate long-term returns.
Lesson No. 3: Don’t Sell Your Entire Stake Too Soon
Having owned Netflix shares for nearly four years, there have been many times when it felt like I should sell my entire position. A bad earnings report, slower subscriber growth or criticisms from skeptics often made me reconsider my position.
Luckily, I held on to some of my stock. I didn’t sell, even when it felt like the right thing to do. And as a result, I still own 210 shares of Netflix in my Million Dollar Portfolio. And those shares today are valued at $23,627.
So my advice is simple. If you’re looking for big profits, take the road that’s less traveled. Be willing to buy unfavorable stocks. And perhaps most important, have conviction and hold on to your investment when the price starts rising.
If you’re serious about making big profits, I’m sure you’ll be interested in my pre-IPO investment research. Right now, the biggest profit opportunities don’t trade on the NYSE or Nasdaq. Instead, it’s a select group of Silicon Valley tech companies that are giving investors 1,000% profits.
I’ve uncovered three secret investments that will give you access to the best tech companies … before their IPOs. Click here to get all the details.