How to Find a 150-Bagger
Peter Lynch profiled an amateur investor who turned $10,000 into $1.5 million on a single stock. His method was surprisingly simple...
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I want to tell you about a guy named Charlie Silk.
You’ve never heard of him.
He never managed a fund.
Never appeared on CNBC.
Never published a newsletter.
He was a data-processing company owner from Boston who fell on hard times, shut down his business, and was sitting at home doing telemarketing to make ends meet.
Then he turned a $10,000 investment into a 150-bagger.
Not over a lifetime. On a single stock.
The story was written up by Peter Lynch himself in a 1994 issue of Worth magazine. Lynch - the guy who averaged 29% annually at Magellan for 13 straight years - called Charlie his candidate for the greatest amateur investor in the world.
I came across this article recently, and what struck me wasn’t the 150x return.
It was how Charlie found it.
Because every single principle he used is exactly what we look for at Multibagger Ideas.
The Setup
It started at the University of Michigan, where Charlie earned a degree in accounting and finance. A professor named Wilford Eiteman - famous at the time for his market theories - posed the question that would shape the rest of his life: how do you find a good stock?
The answer Charlie arrived at over the years was deceptively simple.
Find small companies that have been beaten down, are relatively debt-free, and are selling for less than the cash on their balance sheet.
The hunting ground was the pink sheets - the over-the-counter market where small companies traded in the 1960s.
Many of these firms had gone public in the hot IPO market late in the decade, only to see their prices collapse in the 1973-74 bear market.
That crash was a heyday for Charlie.
Roaming through the wreckage, the opportunities in his area of expertise - computers and data processing - were everywhere.
Computer Usage had $4.10 a share in cash. The stock was at $2.25. Scientific Computers had $1.37 a share in cash and was at one point selling for 25 cents. On the rebound that one hit $33.50, but Charlie bailed out at about $6. An early and expensive lesson: knowing when to sell is tricky.
It would serve him well later.
The real edge, though, was where to look.
On the New York Stock Exchange, 70% of companies have two or more analysts following them. On the NASDAQ, 72% are not covered by a single analyst.
That’s where Charlie hunted. Most investors still don’t understand this: the lack of coverage is the opportunity. When nobody’s watching, prices disconnect from value.
How He Found Blockbuster
Now we move forward to 1984.
Another hot IPO market, followed by another collapse. Small high-tech stocks got crushed.
For Charlie, it was 1974 all over again - except this time he didn’t have to bother with pink sheets. NASDAQ had launched its computerized trading system, making it easier to survey the wreckage.
Cook Data Services caught his eye.
It sold software programs to oil and gas companies - right in Charlie’s alley as a former data-processing operator.
It had come public in 1983 at $16 a share and quickly rose to $21.50, but the price had fallen to $8 when Charlie began tracking it. He was still watching when year-end selling dropped it to $3.
Here’s the kind of setup Charlie liked: a company with no debt, $4 a share in cash, selling for $3.
The entire business was free. You were buying the balance sheet at a discount and getting the operations for nothing.
Charlie’s $10,000 investment - as much as he could scrape up - made him one of the largest shareholders.
Cook Data was healthy. Its revenues had increased four years in a row. But none of that mattered to the market.
Nobody was paying attention.
Then Everything Changed
A few months after Charlie bought, Cook Data announced it was moving away from data services and into the “consumer area.” The president’s ex-wife, who had some connection to the movie industry, convinced him to open a video superstore in Dallas.
This is where most investors would have bailed. A data-processing company pivoting to video rentals? In 1984?
Charlie wanted to know more.
He called the company directly. He made contact with the CEO, Ken Anderson, and the investor relations person, Barbara Phelps. She agreed to send him articles about Cook Data that appeared in Dallas newspapers.
He wasn’t reading analyst reports. There were no analyst reports.
He was doing the work himself.
Then one of the most interesting things happened. The company sent Charlie an independent study on the future of the video-rental industry. It showed that 30% of American households owned VCRs, and that the estimate was conservative - eventually 60-70% would own them. All those VCR owners would need an endless supply of tapes.
Charlie went to the library and looked up company filings in the SEC’s Official Summary of Security Transactions and Holdings.
He saw that two different groups - the Sanchezes from Texas and Lawrence Beck from Illinois - had become major shareholders. Scott Beck was coauthor of the video study and obviously impressed by his own research.
Charlie also learned that revenues from the Dallas superstore had more than doubled in the first three months of operation.
His sources at the company confirmed the numbers and told him how crowded the store was.
People were driving from as far as 30 miles away.
Meanwhile, the stock price had begun to rise on heavy volume. This is a detail that matters. Volume is something Charlie watches very closely. In his experience, stocks on the way down usually don’t hit bottom until the volume subsides. Heavy volume in the upward direction is often a harbinger of bigger moves.
In six months from late 1984 to early 1985, he’d already made five times his money.
Some of his friends were urging him to be sensible and take his wonderful profit.
This is where many investors would have tripped up.
But Charlie had missed some spectacular gains in the 1970s by selling too early - remember Scientific Computers, where he bailed at $6 on a stock that hit $33.50.
He wasn’t going to make that mistake again.
The Hardest Part
This is where Charlie’s story separates from 99% of investors.
He didn’t sell.
After the price doubled, he held.
After it tripled, he held.
He didn’t invent some arbitrary rule about when to take profits.
The fundamentals hadn’t changed. The stores were packed. The expansion was accelerating. The business was getting better, not worse.
In spring of 1986, Blockbuster opened an outlet in West Roxbury, a mile from Charlie’s house. Suddenly, everything he’d been hearing about came to life - he could see the crowds for himself.
This is a tremendous advantage for investors who have stores owned by immature public companies open in their neighborhoods. You get an early whiff of success or failure before Wall Street picks up the trail.
Lynch himself admitted there had been a Blockbuster in his own little suburb of Boston, and that he would have noticed what Charlie noticed.
Charlie and his sons would go over on Saturday night and count cars. The parking lot was always packed.
By late summer 1986, three new superstores had opened in Texas. The Becks had bought franchise rights to four new cities. Revenues continued to grow at a rapid pace. The company was changing its name from Cook Data to Blockbuster Entertainment, and a secondary stock offering was planned for September to fund further expansion.
Then, a week before the offering, Alan Abelson wrote a negative column in Barron’s questioning the whole concept. The stock dropped 15%. Enough investors backed away that instead of raising $20 million, Blockbuster could only raise $3.7 million.
Charlie held.
He was a fan of Abelson’s, but the sales figures from the new superstores told a different story. People were flocking to them. The columnist was wrong.
By mid-1987, though, Charlie started worrying - not about Blockbuster, but about concentration.
The stock market in general was overheated, and too much of his net worth was riding on one position. So he trimmed a portion in the high $30s, just before the October correction. Short term, smart - Blockbuster fell by half to $16.
Longer term? He would have been better off holding every share to capture Blockbuster’s tenfold gain over the next four years. A useful reminder that even good risk management has a cost.
In late 1987, Wayne Huizenga - the Waste Management tycoon - entered the picture as a partner with Scott Beck’s father. Huizenga jumped on the Blockbuster opportunity and eventually took complete control.
Charlie was impressed. Huizenga wanted to concentrate on company-owned stores, which were more profitable than the franchise operation.
Then came 1989, and the biggest test yet.
Lee Seidler, an analyst at Bear Stearns, made a big fuss over the company’s practice of carrying older video tapes on the books as assets - tapes that, in his opinion, were worthless. The argument was that this made Blockbuster appear more profitable than it really was. Seidler’s attack was taken so seriously that the stock got clobbered, falling 36%.
Six months later, the flap was still hanging over the stock when Huizenga visited Fidelity in December 1989. Lynch was running the Magellan fund at the time and sat down with him.
Huizenga’s argument was simple: even if the company changed its accounting methods, the result would be a one-time earnings drop of 10 to 15 cents. Peanuts compared to the growth of the business.
Charlie didn’t need Huizenga to tell him what he already knew. He and his sons had traveled to New York, Connecticut, and elsewhere to visit Blockbuster stores firsthand. Everywhere they went, the stores were jammed with customers.
It took eight years for Charlie to get his 150-bagger.
Eight years of holding through drawdowns, negative press, a Bear Stearns analyst calling the accounting fraudulent, and friends begging him to sell.
Lynch wrote something about this that I think is one of the most important observations in all of investing:
The best gains usually come in the third or fourth year, not in the third or fourth week or month.
Charlie held through all of it.
The Lessons
Here’s why this story matters for what we do at Multibagger Ideas.
Charlie’s checklist was almost identical to ours.
No debt. Cash on the balance sheet exceeding the stock price. Small company with no analyst coverage. A business he could understand because it was in his area of expertise. And management with skin in the game - the Becks and eventually Huizenga were major shareholders who’d invested their own capital.
He did his own research when nobody else would.
No institutional coverage. No sell-side reports. Charlie called the company. He read SEC filings at the library. He visited the stores. He counted cars in parking lots. He talked to management directly.
The best multibagger ideas almost always come from places where no one else is looking. That’s not a coincidence - it’s the mechanism. When a quality business has zero coverage, the price can disconnect from reality for years.
He held through the noise.
This is the part most investors get wrong. They find the right stock, buy it, and then sell it after a double because some expert on TV says it’s overvalued. Charlie ignored the negative Barron’s column. He ignored friends telling him to take profits. He held because the business was getting better.
He bought in the wreckage.
Charlie’s best ideas came after crashes. The 1973-74 bear market. The 1984 IPO bust. He wasn’t trying to catch falling knives - he was waiting for quality businesses to reach absurd valuations because the market had panicked indiscriminately.
Every market correction creates multibaggers. The question is whether you’ve done the homework beforehand so you know what to buy when the prices get there.
He managed risk.
Even with his highest-conviction position, Charlie sold a portion when his exposure got too large. That’s not a lack of conviction - that’s the discipline that keeps you in the game long enough for the compounding to work.
The Punchline
In my view, Charlie Silk’s story isn’t really about Blockbuster.
It’s about a process.
A repeatable, disciplined approach to finding asymmetric opportunities in places where most investors refuse to look.
That’s exactly what we try to do here.
The names change. The industries change. But the setup is always the same: a quality business, ignored by the market, available at a price where the downside is limited and the upside is enormous.
Charlie figured that out sitting at home doing telemarketing in the 1970s. Peter Lynch called him the greatest amateur investor he’d ever met.
If you want to see how we try to apply these principles in practice, take a look at our model portfolio here:
And for every idea we’ve ever written up, you’ll find the full list here:
Thanks for reading,
Nico
Disclaimer: The Content does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Nothing in this newsletter should be construed as a personal recommendation or advice to buy, sell, or hold any investment or security. All Content is provided for general informational purposes only and should not be relied upon for making investment decisions. You should not make any investment decision based solely on the Content without first consulting with qualified financial advisors, conducting your own research, and considering your individual financial circumstances, investment objectives, and risk tolerance. To read our full disclaimer, click here.
So what made him to decide to sell?