What You’ll Need To Do To Make 1,000% Or More In The Stock Market

Credit: Amy McTigue

The secret to making multiples of your money in the stock market is not something arcane or mysterious. It’s actually simple, as The Motley Fool’s co-founder David Gardner describes:

“Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.”

The problem comes when investors lack the tenacity to withstand temporary drops in the share price of a growing company – and how often these temporary falls actually come.

Healthcare services provider Raffles Medical Group Ltd (SGX: R01) can be an instructive example. It’s certainly been a growing company (and a consistently growing one at that!) as you can observe in the chart below:

Raffles Medical's profit growth from 2004 to 2014

Source: S&P Capital IQ

That sort of profit growth, as good as it might have been, wasn’t enough to please the market all the time though. Here’s a table that shows the annual peak-to-trough share price declines that Raffles Medical has suffered through from 2004 to 2014:

Year Annual peak-to-trough share price decline
2004 -11.6%
2005 -11.3%
2006 -16.0%
2007 -17.7%
2008 -63.6%
2009 -11.0%
2010 -14.1%
2011 -19.4%
2012 -15.6%
2013 -17.6%
2014 -7.1%

Source: S&P Capital IQ; author’s calculations

Over the past 11 years, Raffles Medical has endured a double-digit annual peak-to-trough decline in 10 of those years. But here’s the thing: Through it all, the healthcare provider’s share price has gained some 1,130% from S$0.37 at the start of 2004 to S$4.54 today.

Investors without the fortitude needed to withstand short-term volatility would likely have thrown in the towel at some point along the way, be done with Raffles Medical, and thus lose their opportunity to make that 1,130%-plus gain.

Peter Lynch, a legendary investor who delivered 29% compound annual returns from 1977 to 1990 as head of the U.S.-based Fidelity Magellan fund, once said that “Everyone has the brainpower to make money in stocks. Not everyone has the stomach.”

In other words, while finding good companies that can compound value over the long-term requires skill, it’s not something that’s out of reach for most people; instead, what really differentiates good investors from the rest of the pack is their ability to withstand the short-term volatility that is all too common in the stock market.

To be successful at investing, you’d need to develop that stomach which Lynch speaks of and hang on tight through the inevitable but temporary declines in share prices that plague even the best long-term winners.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group.