If I had a lump sum of £1,000 to invest right now, I’d be ambitious and would target a 1,000% return from UK shares. And there are three approaches I’d use to try to achieve that goal.
Multi-bagging shares
The first tactic is to look for stocks backed by businesses that may be capable of driving a 1,000% increase in the share price. And the UK stock market has delivered several multi-bagging stocks over the past few years.
For example, asset management company Impax Asset Management achieved a gain of more than 1,000% in its share price before falling back over the past year or so. And so did international research and data analytics business YouGov. Another top performer has been identity data intelligence services specialist GB Group.
To find such gems before they take off, I’d hunt among some of the smallest companies listed. And I’d focus on the rate of annual improvement in earnings. Sometimes an unprofitable business could prove to be attractive. But that’s only if it looks like it will soon be profitable because losses are decreasing.
However, I admit this tactic is not easy to execute. Some shares may fail to live up to my expectations. And I could even lose money on them. On top of that, holding a stock as it multi-bags can be difficult because of operational and share-price volatility along the way. Patience may be key to success.
Trading stalwarts
My second tactic would be to find companies that may be capable of delivering share-price gains of between 20% and 50%. And to buy their shares to hold for long enough to bag that longer-term gain before selling. The idea is to repeat the trick over and over again with the goal of compounding the gains.
Outperforming fund manager Peter Lynch once said he achieved most of his gains in Fidelity’s Magellan fund by executing this tactic. And that’s despite him famously coining the term 10-bagger. Indeed, finding long-running growth opportunities was only a smaller part of his investment operations. Mostly Lynch traded what he described as “Stalwarts” for shorter periods of time. And he managed to compound annual gains of just over 29%.
So, I’d hunt for stocks in the FTSE 350 index that may be changing hands at prices below their usual valuation because of an operational setback or some other reason. Then I’d buy the shares aiming to sell again when the valuation anomaly corrected — hopefully because of a rising share price.
Tracking the market
My third tactic would be to simply buy shares in a low-cost index tracking fund and hold until I’d achieved my 1,000% gain. According to billionaire investor Warren Buffett, for example, America’s S&P 500 index has delivered a historical compounded annual gain with dividends included of 10.5%. So, if that performance continues, I’d reach my goal of turning £1,000 into £11,000 after around 24 years.
In reality, I’m pursuing all three of these tactics with my own portfolio. However, there are no certainties or guarantees because all stocks and shares come with risks as well as positive potential. Nevertheless, the risks won’t stop me aiming for 1,000% returns and higher.
