Should I hold onto multi-baggers?

The research that the Stockopedia team and others have done into multi-baggers is one of the most popular studies amongst investors. And rightfully so. Finding just a few very high-return stocks can transform a portfolio’s performance.

The power of long-term winners is seen in the wider market, too. Over very long periods, stock market performance tends to be dominated by a few big winners, whereas the majority of stocks produce mediocre returns at best. As the following chart of 30-year returns from Bessembinder et al. shows:

The Makings of a Multi-bagger

In a previous article, I looked at how past multi-baggers performed. In particular, the UK stocks featured in a 2020 study called ‘The Makings of a Multi-bagger’ by hedge fund Alta Fox Capital. The study looked at the 104 global stocks that generated a total shareholder return greater than 350% over five years (with a market cap between $150m and $10b, excluding energy, materials, and financials).

One misconception that this study put to bed was that the UK market was not the place to be looking for multi-baggers and that investors should be focussing on the US instead. While the absolute...