How To Make Your Investment Grow Tenfold
Spotting that 10-bagger and growing with it.
Many investors dream of buying into a 10-bagger — a stock or investment that pays out ten times the original buy-in. The multi-million-dollar question though is how to spot one? From my personal experience, this is a process and there are a few parts to it.
Know when to buy in
Nine years ago, I invested my life savings of close to US$600,000 in Halo Creative Design, the holding company of Hong Kong-based luxury furniture designer Timothy Oulton. At the time, I was CEO of Halo, and the opportunity to take a stake in the business as a shareholder was offered to me by its eponymous founder.
Today, the company’s revenue is approaching US$200 million per annum, and if I were to cash out now, I’d be making close to 20 times more than what I originally forked out.
If you met me back then, you’d probably have said I made the investment at the worst time ever. This was September 2008, the same month Lehman Brothers went pop and the global financial crisis started. The luxury furniture market was badly impacted at a macro level, and Halo had gone ex-growth.
Fortunately, as CEO, I had visibility of Halo's future potential. Most importantly, I was working towards a long-term supply deal between Halo and Restoration Hardware (RH), a California-headquartered upscale home furnishings retailer with an annual turnover at the time of US$700 million.
I saw that Halo could become a key supplier for RH, that our operational capabilities were improving rapidly, our team and partners were maturing quickly, and were approaching readiness for RH as a client.
So there were enough signals for me to invest, irrespective of the world going into meltdown. In the next year, we secured RH as a customer and rapidly doubled our business.
Think like the boss
In the companies I’ve worked with, upon joining, I’ve always operated like one of the partners or owners. This thinking guides my decision-making process. When I joined Halo in 2006 as Group CFO, I was the first employee to ask for stock options in my contract because I wanted to have a real stake in building and growing the business.
I knew there were more things I could do from a business development perspective that would enhance shareholder value. I did not just limit my involvement in the business to management work. Many of the new accounts and business opportunities came through me. I drove acquisitions and my ability to influence the business grew all the time.
Understand the team well
After almost three years of working together, it was clear that Oulton and I had symbiotic and complementary skills. Oulton is an incredible visionary and very talented from a creative perspective.
But he does need people to fill in gaps such as coordinating a team and aligning them towards a distant goal. I wouldn’t spot opportunities as quickly as Oulton, but I could evaluate his ideas and figure out how some of his new concepts could be arrived at.
There were certainly times when I had put the handbrake on or ran interference because it was going to be a very difficult project for us to get off the ground, or the idea was not aligned with Timothy Oulton as a brand.
He brought us a project about making bespoke guitars and I was able to take that project out of Halo. Oulton now runs and funds that personally. I don’t think he thanks me much for that because it has cost him some money since. But I was protecting the other shareholders.
Advocate performance-based remuneration
The owners of Halo have always paid ourselves under market value. We recognised that if we do a great job, then the dividends are a reflection of how effective we have been during the year.
So we paid ourselves a very low basic salary. If we did a good job, we got a healthy dividend. If we did a bad job, we didn’t get it. Since 2008, the dividends themselves have repaid my investment several times over.
Keep your options open
When I look at my overall portfolio and assets today, I’ve got this disproportionately large allocation of assets in Halo. Because the business pays healthy dividends, it negates the need for me to have an exit strategy now.
In the longer term, I could take some chips off the table because I could do with some liquidity. But Oulton is so passionate about his business that he will never retire. One of the things corporate work has taught me is that unless the majority shareholder wants to exit the company, a complete and total exit shouldn’t be on the cards.
Like most opportunities, “incomplete data” is something investors have to deal with. But an understanding of how society might be changing and evolving will help you make informed decisions on what businesses will be relevant in the future, and where the trends are moving towards.
Also, whether the business offers visibility on its future potential, if it has hired the right people, and a correct reading of signal and trends in the economy, will help you figure out if you’ve got that elusive 10-bagger within your grasp — or not.