Many of us value investors look to buy great companies at deep discounts if not fair prices. Depending on the level of risks you are willing to take, some of you will stay away from smaller companies because they often represent higher risks. But then again, smaller companies are where you usually find the Microsoft-to-bes. I'm sure every one of us dream of finding at least one Microsoft in our lifetime. And one is all it takes to make you rich.

Now, many of you will be asking, "But there are tens of thousands of stocks out there. How do you know which one will turn out to be a Microsoft?" Ah, unfortunately, I don't know either. Of course, you probably half expected I would say this. But what many of us don't realize is Microsoft is not the only company that made its investors rich. There are numerous other companies that generated comparable returns for their investors. Take a look at the following table I "borrowed" from Motley Fool.

Bah, another one of those take-a-look-at-what-you-have-made-had-you-invested-in-these-stocks-15-years-ago articles. I know, I know. Nobody cares about what they have missed 15 years ago. Heck, 15 years ago I was still playing LEGO and worrying where I'll start growing hair. The answer to the question "How do I get me one of those now without a time machine, smarty pants?" is what everyone is looking for.

Hey, if I knew, I would have charged you 20% of your profits before I let you in on my secret. So nobody knows. But that doesn't mean you should just throw your hands up in the air, scream some expletives, dump your money in a savings account and be done with it. Why not, you ask? There is no point hunting for an unknown target.

Think of the big brands around you nowadays. Then take a look at the performance of their stocks for the past 15 years. I bet you will find in most industries there is at least one whose performance rivaled those listed above. My point is over time, most good companies do well for their investors. Sure, at the end of the next 15 years, you may find you did not own any companies that returned 23,374% of your investment like Dell did. But I would take a ten-bagger like Fannie Mae anytime.

You'd probably argue, "Yeah, but that is if you find them while they are still small. And small companies are risky. How will you know Company X is going to be eBay? What if it turns out to be Enron?" Well said. If you are risk averse, take a look at the table below again lifted from Fool.com.

As you can see, Altria Group and Simon Property Group were big companies five years ago as they are now. But had you invested in them five years ago, you would have found yourself a couple of multi-baggers. And you say, "Dude, that's five years ago. Come on, I missed the train five years ago. The window of opportunity has closed." Not exactly. Take a look at the Altria's chart below:

In the first quarter of 2003, the stock plummetted to about $27/share close to its February 2000 level of about $20/share. Had you gotten in at that time, you would still be making a fat 260% return in a little more than two years. Not bad at all. Even if you are not willing to take risk with smaller companies, you can still earn some handsome returns if you recognize a behemoth selling at a deep discount. The problem with smaller companies is they take a longer time to earn the deserved recognition.

It is also important to realize two things based on the graph above:
1) Your stock may fall so badly you may lose almost all your profits throughout the journey.
But if the underlying company is good, the stock will bounce back and you make more money (assuming you kept the stock when everyone else is selling of course). If you were really smart, you would buy more when it was falling.

2) The stock gains most of its value towards the end of the holding period.
In the end, the patient and loyal investor wins. When I look for stocks, I look for those that I think will double my money in about 5 years. Most of my holdings are more than a year old now. Some have made modest gains, some losses. But I still think they are great companies. So I intend to hold on to them for now. I have heard investors who sell their holdings the moment they see red. If you owned Altria in 2000 and sold in 2003, you would have a very different outcome from one who bought in 2000 and still holds the stock now.

But, there is a caveat. Great companies don't always stay great forever. Likewise lousy companies don't stay lousy forever. Pay attention to changes in management and directions the company is taking. Or perhaps you found a more compelling investment. In any case, you still need to do some work every year to make sure your companies are headed in the right direction. It's like checking on your kids and making sure they are doing their homework and reading their report cards. Except in this case, you can abandon them if they failed their Math.

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