Peter Lynch was able to find ten baggers by looking around him and observing what people were spending money on.  Often he observed what his wife or others were purchasing and that influenced him to buy certain stocks.  That was back in the 1970s.  Now, in the modern world, there is so much more information available to everyone about companies and their growth.  Can it be as simple as observing what people are spending?

It probably depends on how observant you are and when you notice them.  Obviously you can look at Starbucks, Dunkin Donuts, and Taco Bell now and see how big they are now.  But did you pay attention to them years ago?  They are sometimes too obvious, and probably by the time you notice them, these companies would have already gained the most, and their stocks might have plateaued out.  Likely the ten baggers are probably less obvious but still under your nose.  Smaller businesses with the potential to grow.

My Story

A couple of companies I noticed a couple of years ago were Square (SQ) and Roku (ROKU).  I first noticed a Square tablet being used to checkout and pay in a small cafe at work, and I looked up their stock.  At  that time, they were around $12-14 a share.  I bought several hundred shares since they were cheap, and I learned later that Square was started by Jack Dorsey of Twitter fame.  I hung onto the stock until it got into the $40 range and then I sold them.   Square has since reached almost $100 a share in September 2018 but settled back to the $50 range in December 2018.  As of March 1, 2019, Square is about $77 which if I had held onto the original shares, I would have gained about 6 times my original investment.

Roku (ROKU) is a similar story.  It IPO’ed a couple of years ago at $14 a share and within a month or so, was up to $30 a share and hit $73 in September 2019.  I bought 500 shares at $18 but again I sold too early when I doubled my money, worrying too much about losing my gains.

So a lesson I have learned from the two stocks above is you need to be patient.  You need to be thinking at least 3-4 years in the future or perhaps a decade.  If it is truly a good company, it will continue to gain.  Buy early and hang onto it.  But it will reach a phase where it plateaus out and has slower growth.

Peter Lynch

Peter Lynch also advised looking for lesser known stocks of companies that are not in the spotlight but have steady growth potential.  They have to be producing something that people or companies want to buy.  They are probably smaller companies, and their executives are buying their own stock.  They are probably less than $100 a share but not penny stocks.  You really have to look at their market capitalization, long term growth potential, P/E and PEG ratios, and look for at least 20% growth per year.

Here is a video by Peter Lynch on picking stocks.