Q2 2020: 10 Lessons From A 10-Bagger

30 June 2020
By Maynard Paton

I trust your shares have recovered during the last three months.

A quick summary of my portfolio’s second-quarter and year-to-date progress:

  • Q2 gain: +7.8%*
  • Q2 trades: None.
  • YTD loss: -0.9%* (FTSE 100: -16.9%**)
  • YTD winners/losers: 3 winners vs 9 losers  

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends. **Includes reinvested dividends)

I am thankful the news from my shares during Q2 was relatively positive. In particular, four of my holdings declared dividends — which seems encouraging given the numerous payout suspensions witnessed of late. 

Mind you, I did not escape the dividend cancellations entirely. One of my shares sadly scrapped its payout after admitting the pandemic had led to weaker sales and operating losses.

Just how the market will fare from here is impossible to say. I did not buy during the March lows and remain 25% in cash… so I am naturally hoping the bargains have not dried up just yet!

Let me now outline what has happened within my portfolio during April, May and June. (Please click here to read all of my previous quarterly round-ups). I will then follow up with the 10 lessons I learned from holding a 10-bagger.

Contents

Disclosure

Maynard owns shares in Andrews Sykes, Bioventix, City of London Investment, Mincon, Mountview Estates, S&U, System1, Tasty, FW Thorpe, Tristel and M Winkworth. This blog post contains SharePad affiliate links.

Q2 share trades

None.

Q2 portfolio news 

As usual I have kept an eye on all of my shareholdings. The Q2 developments are summarised below:

  • Record figures (and a dividend) from S & U;
  • Weak trading and pandemic losses (and a cancelled dividend) at System1 (review coming soon);
  • The re-opening of some restaurants at Tasty (review coming soon), and;
  • Nothing from Bioventix, FW Thorpe and Tristel.

Q2 portfolio returns

The chart below compares my portfolio’s weekly 2020 progress (in green) to that of the FTSE 100 total return index (in blue):

q2 2020 maynard paton portfolio vs ftse

The next chart shows the total return (that is, the capital gain/loss plus dividends received) each holding has produced for me year to date:

q2 2020 maynard paton holding performance

This chart shows each holding’s contribution towards my overall 0.9% loss:

q2 2020 maynard paton portfolio contributions

And this chart shows my portfolio’s holdings and their weightings at the end of Q2:

q2 2020 maynard paton portfolio weighting

10 lessons from a 10-bagger

I am tempting fate with what follows next.

I have invested for more than 25 years, and my portfolio always seems to fall apart whenever I write about owning a big share winner.

This phenomenon could be due to investment success often leading to overconfidence, complacency and eventually bad decisions. Or perhaps the market gods simply dislike acts of boasting and self-importance.

I trust I will not upset the market gods with this write-up. Yes, the share has rallied 10-fold, but the gains came with plenty of luck and my portfolio has endured a few nightmares during the same time. I simply want to recap the lessons to help us all find more big winners. 

The 10-bagger in question is Tristel, the manufacturer of high-level disinfectants. 

I first bought Tristel shares on 17 December 2013 at 42p and bought on several further occasions until April 2014. I paid as much as 49p and my average purchase price was 46p including all costs. I have never bought any Tristel shares since.

TSTL Tristel sharepad share price 10x gain

I explained my Tristel investment within this blog post published during March 2014. I have since published 18 blog posts covering Tristel’s results and company meetings, so no hindsight is involved. The share price now is 420p and has been as high as 520p. 

I trust these 10 lessons can help you find — and keep hold of — your own 10-bagger:

1) You may have to do your own research and read the daily RNS to find the best buying opportunities 

I did not discover Tristel from a discussion board, social media or investment magazine.

The company instead first appeared on my radar after reading the daily RNS. Skimming stock-exchange announcements for unfamiliar shares and intriguing statements can occasionally unearth compelling opportunities.

The Tristel RNS that caught my eye was an AGM statement published on 10 December 2013. Here is the full text:

“At the meeting Paul Swinney, Chief Executive Officer, will provide shareholders with the following update:

“I am very pleased to report that the strong trading highlighted at the time of our preliminary results has continued.

In relation to the six months ending 31 December 2013, unaudited revenues are expected to be in excess of £6 million, which is 36% ahead of the same period last year. We expect unaudited pre-tax profit to be no less than £0.6 million for the period, compared to adjusted pre-tax profit of £0.5 million for the full year ended 30 June 2013 and adjusted pre-tax loss of £0.6 million for the same period last year.  As a result we are confident that our full year results for the year ending 30 June 2014 will be ahead of current market expectations.

The growth has come from all areas of the business, both within the UK and overseas.  We have seen a significant increase in sales of the Tristel Wipes System globally, the Crystel clean room product range has shown encouraging performance and is now contributing to Group profit, and we are seeing the impact of our restructured cost base. We believe that the pattern of growth will continue in the second half.” 

I calculated pre-tax profit was running at £1.7m a year, which I believed would support a P/E of about 12 given the then £16m market cap.

The 12x multiple looked very modest for a business with 36% sales growth and upbeat management expectations. The valuation and commentary were enough to prompt further research.

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2) You will probably have to study companies with imperfect histories and small market caps

Tristel did not exhibit obvious ‘quality’ at the time of my purchase. The company floated during 2005 and hit trouble a few years later:

TSTL Tristel sharepad 2005-2013 eps dps
Year to 30 June20092010201120122013
Revenue (£k)6,8478,7649,28710,93910,558
Operating profit (£k)1,2831,504522757493
Other items (£k)-233-(174)(2,231)
Net finance income (£k)2(13)(16)(6)(14)
Pre-tax profit (£k)1,2851,724508578(1,750)
Earnings per share (p)3.423.841.271.77(3.16)
Dividend per share (p)1.701.830.560.620.40

Extra investment in cleanroom facilities and overseas operations knocked both earnings and the dividend during 2011. The haphazard performance continued into 2012 and 2013, as demand for certain legacy products collapsed and a manufacturing agreement was terminated. 

The absence of a reliable track record was reflected by the lowly £16m valuation — too small for most investors to bother with… which created the upside potential for anyone enterprising enough to look beyond the shaky headline numbers. 

TSTL Tristel trio wipes

3) You will almost certainly require companies that have a quality product 

Tristel did not deliver 10-fold returns just because the shares were cheap. The business had to deliver decent profit growth, and encouraging signs had already been presented within the preceding 2013 results.

The business carried net cash and was still paying a (smaller) dividend, and therefore was not a complete basketcase. The results narrative also contained some very enlightening remarks about the company’s products and potential. This paragraph in particular stood out:

During the year, over 1.7 million disinfection procedures were undertaken by Tristel’s proprietary wipe in the 27 countries in which it is commercially available.  The Wipes System can fairly be described as having become the principal method of decontamination of nasendoscopes, cardiology and ultrasound probes in those markets it has gained a commercial foothold.  However, the potential for substantially higher procedure numbers, even in the markets in which the Wipes System is most established, and in those markets where it has only recently been launched, is great.

I translated all that as follows:

  • disinfection procedures” = healthcare = not obviously cyclical;
  • proprietary” = competitive advantage;
  • 27 countries” = can be sold overseas = not limited to the UK;
  • principal method” = market leading;
  • the potential for substantially higher procedure numbers” = growth opportunities.

I also realised Tristel’s disinfectants were repeat-purchase items, so revenue would be relatively predictable as well. The underlying products — despite the headline financials —appeared pretty good to me.

4) You may have to meet management for useful snippets to keep you invested 

I have followed Tristel carefully for the last six years. The company has hosted numerous results webinars, City presentations and head-office opens days and I have attended most (if not all) of those events during my time as a shareholder.

Interesting snippets can often be picked up when meeting management. For instance, the directors at the first presentation I attended predicted 17% per annum sales growth and pre-tax margins rising to 15% — none of which was disclosed in the results RNS or the presentation slides.

TSTL Tristel city presentation

The Q&A is usually the most enlightening part of any company slideshow.

Tristel’s management has over time batted away all sorts of questions about patents and competition, and as a result I have developed a greater understanding of the products’ inherent strengths. I have in turn become less concerned about short-term growth rates, valuation multiples and the weighting of the investment in my portfolio. 

5) You may find a business with a really great product does not require exceptional management

I could have easily foregone this 10-bagger. 

I will not recount the full details (you can read them all here), but during 2016 Tristel’s executives and senior managers collected a £1m options windfall following — in my view — the dubious disclosure of trading information and of the option plan itself.   

I wrote at the time: “[Tristel’s] past RNS statements have now given me some doubts about the leadership quality of this business”. I sold approximately half of my then holding in response. 

Tristel’s directors have since told me they “strongly rebut” the allegations of a lack of disclosure and of them “dipping their fingers into the till”.

Anyway, I also wrote in 2016:

Why not sell more? Well, Tristel’s medical wipes and its other disinfectants are high-margin products that are used day in, day out in the vast majority of UK hospitals — so the business retains many operating and financial attractions… and may not need superb executives to do quite well.

There is decent overseas expansion potential, too.

And of course, I may be completely wrong about my suspicions about management.

But right now, I feel it’s a shame that Tristel’s boardroom now looks to be of much lower quality than the products the firm is trying to sell.”

Management has since bungled the group’s planned expansion into the United States. What was originally claimed to be a two-year project has since turned into a five-year slog with still no end in sight. 

I have nevertheless kept the faith with Tristel — and overlooked the subsequent management mishaps — because I am confident the products are good enough to sell in greater volume no matter who is in charge. 

6) You will almost certainly ‘take profits’ on the way up due to portfolio-weighting worries and/or valuation concerns 

The best investment problem is deciding when to bank your gains.

Trouble is, top-slicing a share on a 10-bagger journey can appear extremely foolish in hindsight.

Take my first Tristel sale. I sold 19% of my original stake after six months because the share price had surged from 42p all the way to… 79p. You will never go broke taking a profit, but you will never maximise your profit either. 

TSTL Tristel sharepad share price bought sold

I top-sliced a further 5% of my original stake during September 2015 at 100p. And I disposed of 44% of my original stake during January/February 2016 at 123p due to a mix of the aforementioned options fiasco and my shareholding growing to represent 20% of my portfolio.

I last top-sliced at 289p during September 2017, when I sold 7% of my original stake due to valuation nerves:  

I calculate the near-term P/E to be close to 30 and the medium-term P/E — using somewhat confident growth projections — to be about 25.” 

I should have just held tight. 

I currently hold 25% of my original stake and the shares represent 17% of my portfolio. I can’t face calculating what my portfolio would now be worth had I never sold. 

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7) Your large paper gains will occasionally shrink as the share price drops significantly

A 10-bagger does not rise in a straight line. Even if you can resist the portfolio-weighting worries and valuation concerns, the share price will experience substantial falls as everybody else frets about the same issues. 

The chart below shows Tristel’s share price relative to the trailing all-time high:

TSTL Tristel share price relative to trailing high

On three occasions as a shareholder I have watched the price plunge more than 30% from the trailing high. I have learned prospective 10-bagger investors must keep their nerve when markets turn lower. 

I was surprised to discover Tristel’s shares have traded at 10% or more below their trailing high during half of my time as a shareholder. I therefore can’t imagine anyone who follows a ‘momentum’ strategy could have held on for the full 10-bagger outcome.  

8) You will discover 10-baggers are very rare and you should not correlate the attention given to them to the probability of owning one

You are reading this article because the headline mentioned ‘10-bagger’ and you want to know how you can enjoy 10-fold returns. 

Bad news I’m afraid — 10-baggers are extremely rare.

Since I first bought Tristel, only 17 out of 1,358 other UK shares have 10-bagged — and a few of those 17 might be erroneous due to suspect SharePad data:

TSTL Tristel sharepad 10-baggers since 17 12 2003

For further perspective, SharePad shows 27 out of 1,167 shares have 10-bagged over 10 years. The 10-bagger count is 37 out of 831 over 15 years and 41 out of 574 over 20 years. 

However, these stats do exclude shares that:

  • Once 10-bagged only to fall back;
  • Once 10-bagged and were then acquired, or;
  • Have 10-bagged since 17 December 2013. 

But the stats also exclude all the shares that have sunk without trace — which I suspect evens out the odds.

Tristel is the first 10-bagger I have enjoyed during my 25-plus years of investing. That timescale might tell you something about the likelihood of capturing a 10-bagger for yourself. Those 25 years also explain why I have drawn attention to my Tristel 10-bagger — I do not want to wait until 2045 for the next 10-bagger blog opportunity.  

9) You will almost certainly require an elevated P/E rerating as other investors become very optimistic

Earnings growth can only take a share price so far. Tristel’s underlying earnings have tripled during my time as a shareholder — which would have delivered a 3-bagger had other investors not been prepared to pay a higher multiple for those growing profits.

I first bought Tristel when the P/E was approximately 12. Today the trailing multiple exceeds 40. That P/E ‘rerating’ is what really drove the share price to 10-bagger status.

TSTL Tristel sharepad 2005 20019 eps dps

As more investors latched onto Tristel’s progress and recognised the company’s attractions, the valuation has become ever more extended. Enjoying a 10-bagger almost always requires other investors to become very optimistic. 

I am hopeful the optimism is justified. Covid-19 ought to have generated significant sales of Tristel’s high-level disinfectants, and I am convinced demand will be sustained as hospitals maintain their new disinfection regimes. But that may be wishful thinking.

10) You will need a lot of luck

The pandemic was of course pure luck for Tristel shareholders — nobody foresaw Covid-19 six months ago let alone when I invested six years ago. 

In fact I never dared think the shares would ever get close to 500p and a P/E of 40-plus. My Buy report instead hoped for 100p before 2017.

I was also lucky to read that RNS back in 2013 and fortunate enough to recognise the attractions of the products. I could also attend the company presentations in central London — an option not available to everyone.

I could have easily sold out entirely during 2016, or exited the share on valuation grounds during the following few years. Somehow I stayed in — and rode one of the market’s very few 10-baggers. 

During my time as a Tristel shareholder I have bought disasters such as System1 and Tasty and bought other shares that have gone nowhere. My portfolio performance during the same six years has been very average despite owning a 10-bagger. I am therefore not an ace stock-picker and can only conclude luck must have played a significant role. 

Let me round off by wishing you the best of luck with finding your own 10-bagger. In the meantime I have my fingers crossed that this write-up has not upset the market gods.

Until next time, I wish you safe and healthy investing.

Maynard Paton

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12 thoughts on “Q2 2020: 10 Lessons From A 10-Bagger

  1. Mark Shelton

    Great story, Maynard. Very helpful analysis of a unusual set of circumstances. Would you also say that a very important part of being involved in a ten-bagger is your entry-point?

    Reply
    1. Maynard Paton Post author

      Hello Mark,

      Yes, the price you pay is important. I bought at a modest P/E and that multiple has been re-rated much higher as other investors latched onto the unfolding story. This ‘multiple expansion’ combined with earnings growth is what creates the big share winners.

      Maynard

      Reply
  2. Steven Clare

    Great to read of your buying success here with your first 10 bagger. I’ve been investing for around 20 years and have been fortunate to see 3 10 baggers – GAW, FOUR and FENR (now taken over). Admittedly I have a more diversified portfolio than you.

    My experience agrees with yours in terms of having faith and holding them through significant downturns. For the instance of FOUR my trading history shows that when I had automated stop losses my original holding sold out. Thankfully I bought back in then top sliced c.50% early in the rise in price. Had I held that other 50% I would see an exceptionally nice size holding.

    I’ve been in and out of GAW a couple of times over the last decade. The rapid climb in recent years is due to new strategy and a rerating of the P/E, as you’ve experienced. Also looking at the sudden market downturn in March this year you could pick them up for less than 50% of the price they are today!

    Reply
    1. Maynard Paton Post author

      Hello Steven

      Thanks for the comment. Funnily enough I owned GAW between 1998 and 2007, and lost patience with the business that at the time was going nowhere: https://knowledge.sharescope.co.uk/2019/01/30/screening-for-my-next-long-term-winner-games-workshop/ My original £8 purchase would now be a c10-bagger. I sold out of LSE in 2007 having bought a few years earlier under £4 — now a 20-bagger. Oh well. I think looking back at your larger portfolio winners, how you found them and why you held on can be helpful to find and hold other winners.

      Maynard

      Reply
  3. KayD

    I enjoyed reading your piece on 10-baggers. I’ve been investing as long as you and have had my share of them over the years but I differ from you in that I don’t take continual profits ever, on anything, so as a result I have had a few turkeys as well. I think that you can’t predict which stock is going to be a 10-bagger or a turkey, a frightening prospect maybe! I let the market relieve me of stocks through take-overs etc. I like to keep pretty much everything I’ve bought to teach me a continual lesson that I’m involved in a very risky hobby! My “Money Making Hobby” as I call it has made me financially comfortable over the years but I’m not really sure if not doing any profit taking as benefited me or not. I think to be successful you just have to keep buying a few young companies. Over time a few will be 10-baggers and a few will be turkeys, you just have to keep your nerve.

    KayD

    Reply
    1. Maynard Paton Post author

      Hello KayD,

      Glad you liked the post. Yes, very difficult to tell in advance which shares will do really well. As you say you just have to keep your nerve. Hold a spread of shares and the really big winners ought to offset the prize turkeys and the numerous other shares that just go nowhere. I tend to cull my turkeys but remind myself of the lessons by listing all my past and present holdings here: https://maynardpaton.com/portfolio/#individual-share-returns I am not sure either whether profit-taking has benefited me or not. I am now looking for the ‘next Tristel’ :-)

      Maynard

      Reply
  4. Kelvin Lum

    Interesting article as I have recently been reflecting upon the lessons to be learnt from my own investing experience which I hope will make at least mildly interesting reading for some. I primarily started investing circa 2007, with a bit of dabbling before that from about 2000. In that time I have made some very stupid and costly investments and have on three occasions seen the largest holding in my portfolio fall off a cliff. These being Telewest (a very early mistake which halved my Sipp fund), RBS and TSCO. In addition to these disasters, I’ve also lost significant sums in total wipe outs Monitise and CLLN. Yet despite the major mishaps, my long term investing record is one of substantial profitability. For this I have to thank 3 ten baggers and a few 3-6 baggers within my portfolio. Amazingly the profit from the best of my ten baggers is greater than the sum of all the losses for the 5 shares mentioned above, despite my investment in that share to date being a tiny fraction of what I put into the 5 loss makers. One obvious lesson for me is clearly not to invest a large proportion of my capital in supposedly safe trendy large caps of the day, as both RBS and TSCO were when I bought them. However on current valuations there is a strong argument for saying that these are nowhere near the most expensive investing mistakes I’ve made. For that we have to look at what I should not have sold.
    First I have to explain that I’m very much a buy and hold investor and that in a typical year my sales are primarily determined by the need to take advantage of the Capital Gains tax allowance, with the odd speculative sale occurring in my ISA or pension. So 3-4 sales a year are quite typical.
    The sells I wish I hadn’t made all relate to the ten baggers, which are AMZN, DNLM and LGEN. In the case of AMZN I sold 40% of my holding at a point when that 40% equalled slightly more than I’d paid for the whole tranche. At the time I’d read several articles by respected “expert” analysts pointing out that the company had never made a profit, didn’t look like doing so for the foreseeable future, that the CEO didn’t care about doing so and that the share was crazily overpriced. The sale made it a risk free investment as I’d already banked a profit regardless of what happened to the remaining 60%. Of course, AMZN is now a twenty bagger and I’d be sleeping very soundly indeed if I’d only retained that other 40%. It’s a similar storey with DNLM, which I purchased on the basis of a shopping trip to one of their stores. I loved what they were doing, they floated and the price dropped soon after, so I bought some. The price more than doubled, but they were still quite a small newly floated risky company and I sold half the shares to bank a profit. The half I kept is now a big holding, but the other 50% along with a string special dividends would have made it my biggest and most profitable holding. With LGEN I have less regret as it wasn’t a company I was attracted to, I simply took a gamble based on price. At the bottom of the banking crisis, it dropped to 25p. At that price I could buy a whole lot of shares for little money and so I did. I just thought they were being punished as if they were a bank and they weren’t a bank. It’s the only time in my life that I’ve traded rather than invested in a share. I think I sold at 40p, bought back at 35p, sold again at 65p bought back at 50p and so on up to roughly 135p. After that I held on for a while, but then started pairing back. The price however, carried on rising for a long time until recently and all along has paid out generous dividends. Despite the huge rises in my AMZN and DNLM shares, I’ve actually made more on LGEN due to the trading profits and high dividends in addition to ten bagging.
    I think the lessons I need to learn about ten baggers are:-
    1. Don’t play safe with your winners, just run them until you are fabulously rich before selling some.
    2. If you want to sleep at night, sell your big losers. After all, they are the source of your nightmares.
    3. Sod rebalancing your shares, they are the gambling part of my portfolio. Rebalancing is a great idea and you should do it on your Funds, ETFs, Investment Trusts and Bond Funds.
    4. Don’t pay too much attention to expert analysts.
    5. Don’t buy safe large cap shares, keep the safeguarding to pooled investments.
    These are hopefully lessons for my ten baggers to come. Hopefully one of SMT, EXPN, HRI or AJB will make it there one day.

    Reply
    1. Maynard Paton Post author

      Hello Kelvin,

      Thanks very much for taking the time to recount your investments. More than mildly interesting, at least to me. Some blasts from the past there. I too remember when RBS etc were popular.

      Amazingly the profit from the best of my ten baggers is greater than the sum of all the losses for the 5 shares mentioned above, despite my investment in that share to date being a tiny fraction of what I put into the 5 loss makers”

      Starting to see a pattern here with other investors — hold a spread of shares and the really big winners ought to offset the losers and the numerous other shares that just go nowhere.

      Have to agree with your 5 lessons, although no2 can be a source of big winners if they recover! No4 goes without saying :-) I have my fingers crossed for your next 10-bagger!

      Maynard

      Reply
  5. Mr Michael F Broom-Smith

    Thank you for a very interesting article. I would have had a 10 bagger in Boo if I had not sold in March. I have only been properly investing for about 6 years.

    There is a very interesting, quite old, post on Micro Cap Club which maybe of interest entitled “Conviction to Hold”

    https://microcapclub.com/2014/08/the-conviction-to-hold/

    And a very recent post from John Huber at Saber Capital on coffee can investing:

    http://sabercapitalmgt.com/the-coffee-can-edge/

    Kind regards

    Michael

    Reply
    1. Maynard Paton Post author

      Hello Michael,

      Thanks for the comment. Bad luck with BOO, although I am not sure whether the price is now back to where you sold.

      Not a criticism of you, but many blogs talk of the theory but few blogs give actual real-life stories of holding multibaggers or using a coffee-can approach or whatever. I do wonder in particular whether Mr Cassel has ever owned a stock. He has never publicly declared a shareholding as far as I know.

      Maynard

      Reply

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