The biggest returns earned over a long period would come from compounders—that is, companies who are monopolistic or oligopolistic and are able to grow their earnings power by 20% to 30% with a long runway. Find these companies and hold on to them for a long time. Focus not on price movements but on the company’s earnings power.
Reported earnings of high growth companies are often misunderstood by investors. Current earnings do not equate to real earning power. Companies that are growing rapidly often reinvest heavily and their earnings are distorted as a result. Earnings are the reported numbers. But real earnings power reflects the ability of the company to earn high rates of return on capital and grow at a high clip.