Professional fund managers struggle to beat the market. Hedge funds have underperformed the market by roughly 3 per year since 1993.. That performance might seem embarrassing, but hedge funds are not as awful as they seem. Investors and hedge funds consist of wealthy individuals that want capital preservation rather than aggressive growth, but this video is not about the complex strategies that some hedge funds use.

This video is about an interesting, simple and underrated strategy that has outperformed the stock market and will likely continue to do so in the future. Manish prabhai is an investor that many of you do not know about, despite his lack of popularity among retail investors, his investing track record manifest a unique skill set of adapting to different market environments. If someone invested one hundred thousand dollars in monisha's fund in july 1999, they would have 1.8 million dollars by march of 2018.. That is an 18x return in 19 years, much higher than the s p's return of 3.3 times over the same time frame.

So how did manish do this and what is his investing strategy? There are two strategies that long-term investors, like manish, have used to generate enormous returns. The first strategy is to invest in growing pies. These growing pies are businesses with solid fundamentals, are trading at a reasonable price and have the potential to grow for years to come. In other words, these are companies that you can purchase and forget about them.

If you hold growing pies for a long time, you can achieve 10 to 100x returns. When you choose correctly, the second strategy is to invest in discounted pies. Discounted pies are stocks that are trading on major discounts. The goal with discounted pies is to purchase stocks under their intrinsic value and sell those stocks when they exceed that intrinsic value.

This was the strategy popularized by benjamin, graham warren buffett's mentor and the author of the renowned book called the intelligent investor. The problem with this strategy is that you have to constantly buy and sell stocks, which is very tax, inefficient and time consuming. Not only that, but it's also difficult to achieve extremely high returns, because your performance is usually capped by the difference in a stock's current value and intrinsic value. So even if you do manage to purchase discounted pies effectively, your returns would be limited.

There's one more strategy that the world's wealthiest investors have used to beat the market for centuries, which is to invest in art, 61 of all millionaires and billionaires, invest in art as a way to diversify their portfolios. This is because, from 1995 to 2020, contemporary art prices experienced an average annual return of 14 per year. Retail investors, like you and me, can invest in art by using the sponsor of this video masterworks masterworks is a platform where anybody can purchase shares of expensive art. Just like buying stock in a public company, if you're interested in investing in multi-million dollar art check out my link to masterworks down below now, let's get back to the video from the year 1994 to 2000 manish used the growing pie strategy to achieve high returns as An individual investor by mid-1999 manish already had some of his growing prizes become 200 baggers, which is when a stock increases by 200 times in value.

He realized that the dot-com party was going to end soon and switched this strategy to buying discounted pies. The 18x return that monisha chief from 1999-2018 was mostly from investing in discounted pies, which worked incredibly well for manish, but even though an 18x return is outstanding, manish recently realized that he needs to change his strategy. Manish revealed a simple framework that has outperformed the market and will likely continue to outperform the market. This strategy is called the spawner investing framework.

There are five different ways: businesses can become multi-baggers. The first way is to invest in businesses that are focused mouse traps. Focused mousetraps are businesses that are focused on their respective industry and have a long runway ahead. One example is costco, which has expanded its big box retail stores across the world to provide the best products at the cheapest price.

Over the past 20 years, costco stock has increased by 11 times in value, which are spearheaded by costco's expanding customer base and new stores. The next set of multi-baggers are capital allocators. These companies acquire businesses and use the earnings from those businesses to initiate even more acquisitions. The most famous example of this is berkshire hathaway, which once started out as a textile manufacturing company and is now a multinational conglomerate.

The third way that businesses can become multi-baggers is by being uber cannibals. Uber cannibals are companies that are focused on buying back stock. These companies usually grow very slowly and use their earnings to buy back shares. Buybacks reduce a company's outstanding shares, which means that the supply of shares decreases when the supply of shares decreases.

The share price usually increases. A perfect example of this is a company named nvr. Nvr's revenue has not increased by a significant amount since 2006. Given that information, you would think that the stock wouldn't grow much contrary to expectations.

Nvr stock is up by roughly 6.3 times in value since 2006, and this is solely because nvr uses his earnings to make stock buybacks when the company is trading under intrinsic value. The fourth way to purchase a multi-bagger is to invest in deeply undervalued stocks. These companies are trading at extremely low discounts and have a lot of debt. One example of this is dave and busters a stock that went all the way down to seven dollars per share.

In march of 2020, dave and buster's stock is now at 35 dollars per share, which is a 5x return within one and a half years. All four paths that we just talked about are reasonable ways to compound your wealth, but there is one path in particular that this video will focus on which is spawners. Spawners are companies that constantly spawn new initiatives and are open to failure? Almost every successful investor has achieved enormous returns by investing in spawners. One website named state aroma attracts all of these super investors that usually beat the market.

In the past two quarters, seven of the top 10 buys were spawners. Investing in spawners is a strategy that has worked very well for the past two decades and will likely continue to do so. So what exactly is a spawner, and how can we go about finding them? There are four types of spawners adjacent embryonic cloner and non-adjacent spawners adjacent spawners are companies that create businesses that are related to the current business model. Starbucks is a perfect example of this.

The business has leveraged its stores to release alcohol products, frappuccino bottles and coffee machines. All of those products are related to starbucks and expand its revenue with little to no input costs. Embryonic spawners are companies that acquire businesses and expand them into larger ones. Facebook is the epitome of all embryonic spawners.

Over the past decade, mark zuckerberg has acquired and developed. Many companies such as instagram, whatsapp and oculus vr, the third type of spawner, is a clone responder, which are companies that copy successful products. Microsoft has cloned existing products many times, microsoft windows word excel explorer, surface azir and teams all started as copies of existing products. The most recent one out of that list is microsoft: teams, which is essentially a copy of slack and zoom.

The last type of spawner is a non-adjacent spawner. Non-Adjacent spawners are companies that create new businesses that are not related to their existing business. Byd is the perfect example of this. Before the pandemic, byd was primarily an auto company when kovit hit byd started manufacturing masks.

At one point, these masks were actually making more profits than its actual auto business. Byd is now one of the largest mask manufacturers. All of these types of spawning are great, but there's one type of spawner that can easily generate 100x returns. That type of spawner is the apex spawner.

I previously told you that there are 4 types of spawners, but that's not really the case. An apex spawner is a company that has attributes that follow all four types of spawning. A prime example of this is amazon. Amazon started out as an online bookstore, but slowly spawned into related businesses.

Jeff bezos began by adding clothes, music, a marketplace and eventually everything you can think of that checks off the first type of spawning adjacent spawning amazon also engages in acquisitions quite frequently and has grown them very well. The company has acquired large corporations such as zappos zoox, ring, audible and whole foods. That represents a second type of spawning. Embryonic spawning.

Amazon is also engaged in cloning through amazon food delivery, the fire phone and amazon payments. Those products were not big successes, but they were also not that capital intensive in october of 2014 amazon filed a 170 million dollar write-off for the amazon fire phone, a major loss for the company. Everyone sees the amazon fire phone as a failure, but it was actually a very smart move by bezos. If the fire phone was successful, it would have captured a large chunk of the smartphone market and today would be worth hundreds of billions of dollars, which is nothing compared to 170 million dollars.

That represents a third type of spawning, which is cloning. The last type of spawning non-adjacent spawning has also been used by amazon. The launch of amazon web services shocked some investors because it wasn't directly related to amazon's e-commerce business model. Now it represents a large portion of amazon's revenue, jeff bezos once said.

I knew that if i failed, i wouldn't regret that, but i knew the one thing i might regret is not trying amazon is the ultimate apex spawner and the stock has reflected this. As we all know, today, amazon stock has increased by 340 times in the past 20 years in 20 times in the past 10 years, apex spawners have generated enormous returns in the past, but how can we take advantage of this simple strategy? You might recognize that there are many apex spawners that have grown to incredible levels: alphabet, amazon, alibaba, berkshire, hathaway, tencent, baidu and apple have all been spawning for decades. For example, apple is currently working on the apple car and apple glasses. Even if both of these products fail upon their release, apple will still have billions of dollars in cash and profits to spare.

If the apple car and apple glasses do succeed, then those products will be worth hundreds of billions of dollars. This unlimited upside gives apex spawners, enormous potential, but apple stock likely won't increase by 100 times in value from current valuations. In order to achieve those types of returns, you have to look for future spawners before they even have a long history of spawning. One example of this is alphabet which dominated the search engine business with google chrome early on once chrome began, generating enormous amounts of revenues.

Google then began spawning new initiatives. Every spawner usually has one business that generates enormous amounts of profit and also as a massive mode using the profits from that one business. The spawner then expands into new initiatives. Facebook started with the facebook platform, amazon and alibaba started with e-commerce apple started with the iphone and alphabet started with the google search engine.

The spawners i just listed could easily be multi-baggers over the next decade, but if you want to take on more risk, then you could look for the next apex spawners. That is what kathy wood is doing. To give you an example, tesla may become a spawner with evs being their primary business. Zoom can also become a future apex spawner by expanding upon its existing platform.

Another potential eight-back spawner is square square, has been engaging in many new acquisitions, including zesty and weebly. In 2018, an aei business named eloquent labs in 2019 desa and credit card attacks in 2020 entitled an after pay in 2021. This is all on top of its existing business, which includes a square terminal square reader square, stand square register, cash, app and square banking. At a market, cap of 110 billion dollars square could easily 10x in value in the next decade.

If the company successfully spawns new initiatives, those who invested in a portfolio of 5 to 10 spawners would have easily outperformed the market in the past and will likely continue to do so. Let's say someone theoretically had a portfolio of 10 spawners if two of them increased by 10 times in value over the next decade, that portfolio would increase by at least two times in value. Investors can also take lower amounts of risk by investing in spawners like facebook and google, which could still potentially generate four to five x returns over the next ten years. Investing in spawners is ultimately the easiest way to capture enormous upside while taking on little to no risk.

Let me know what you think about spawners in the comments section below you can join me on my journey for investing in future and existing spawners on patreon. My patreon includes my main portfolio, my 25 000 portfolio, my watch list research reports, articles valuation models and much more by joining my patreon in the first link down below you will gain access to months of research on a variety of existing and upcoming spawners. Thank you for watching. As always and i'll see you in the next one.