The Key to Making 100 Times Your Money in Stocks… And Why It’s So Hard to Do – DailyWealth

Editor’s note: If you’re not doing this, you’re probably missing out on one of the best advantages of investing. Most folks can’t stick with it – and in today’s emotional market, it’s even harder. In this essay, adapted and updated from a 2015 Extreme Value issue, Dan Ferris shares the secret to making multibagger returns…

“The coffee-can portfolio” is all but forgotten today…

The term first appeared in a 1984 article by money manager Robert Kirby. He says it comes from the Old West, when folks put their most valuable possessions in a coffee can and hid it under their mattresses.

In the mid-1950s, Kirby had been actively managing a client’s money for about 10 years with the goal of wealth preservation.

One day, the wife called to say her husband died and she had inherited his estate.

Kirby looked at the husband’s portfolio. The husband had invested in the same stocks Kirby’s firm had recommended to the wife. But instead of actively trading them, he had put about $5,000 into each stock, stuck the stock certificates into a safe deposit box (the “coffee can”), and left them.

The two accounts invested in the same stocks. One was actively managed by Kirby using his firm’s buy and sell recommendations. The other was simply held for more than a decade.

Kirby didn’t publish the results of the wife’s portfolio, nor a comparison of the two. But he was shocked by the excellent results of the husband’s coffee-can portfolio…

Remember, the husband put about $5,000 in each stock. Sure, some of the positions fell to about $2,000. But several went to $100,000. That’s 20 times his initial investment. One stock – Haloid Photographic, later known as Xerox – went to $800,000. That’s 160 times his initial investment.

There are two important lessons we can learn from this story…

The first is that an actively selected portfolio must be allowed to develop over a much longer period of time than most people allow. You don’t generally make several times your money in less than several years. It takes patience.

The second is this: What most people call “news” is really just “noise” to investors.

The majority of what’s in the Wall Street Journal, the Financial Times, the New York Times, and TV news channels doesn’t mean much for the markets over the long term. People pay too much attention to this noise. They buy and sell stocks based on it.

That’s a big mistake.

Instead of building a portfolio of great businesses that compounds for decades, people wind up selling out at the slightest sign of trouble based on the noise of the moment. Often, they lose money because of …….