Posted on July 25, 2022 by Scott Shuda
The book “100 Baggers: Stocks that Return 100-to-1 and How to Find Them” by Christopher Mayer is chocked full of sage advice.
Peter Lynch made the term “10 bagger” famous. It’s an investment that returns 10 times its initial purchase price, or 1000%. As great as a 10 bagger is there has been even bigger 100 baggers where a $10,000 investment turns into $1 million. Meyer based his book on a study that found 365 companies 100-bagging it between 1962 and 2014.
Are you going to find and hold a company that become a 100 bagger? Truthfully, probably not. It’s a quest like Captain Ahab hunting the great white whale Moby Dick. We know how that ended. Even so there is a lot to learn from this exercise.
Most 100 baggers took 16-30 years to get there, but some soared much quicker. They came from diverse industries – retailers, airlines, pharm, tech, biotech and more. Not surprisingly Berkshire Hathaway was the king. The list includes Franklin Resources, Biogen, Dell, Qualcomm, Cisco, Monster Beverage, Southwest Airlines, Home Depot. . . all of which got there in under 10 years.
The 365 companies show some common investing pathways.
1. Small but not tiny companies. Avoid large companies. Microcaps are fertile ground, but not necessarily the tiny companies with no sales and wishful thinking. Median sales of $170M is a good launch pad. $1B is a good ceiling. Buy puppies but avoid unborn puppies.
2. Owner operators: Those in charge should be highly incentivized. Jeff Bezos owned a lot of Amazon so he made good long term decisions. Most had a face. Walmart – Sam Walton, Microsoft – Bill Gates. Empirical evidence points to investing with owners. Sizable equity ownership equates to performance.
3. Growing sales and increasing sales multiples. For growth, look for companies with a disruptive service or model. High growth often leads to the second engine, an increase in sales multiples. Ideally find high growth without paying too much, but you should still be willing to pay up for growth because the math favors you.
4. High returns on capital is very important. 100 baggers are really good businesses. They earn high return on their capital.
5. Ignore the macro: Focus on the company, not interest rates, the President, etc. The media will pound you with economic news, but does it matter? A good company will forge ahead.
6. Coffee can: Back in the day people put their most valuable possessions in a coffee can and hid it away. This is difficult. Investors are attracted to moving stocks like a fish is to a shiny, moving lure. As Warren Buffett said, “The stock market is a device to transfer money from the impatient to the patient. Buy right, sit tight.
His most important lesson is . . .Holding a winner can be BOTH a rollercoaster and boring ride. Apple went up and down significantly many times, but it also had boring quiet periods when it went sideways. These two things can be psychologically challenging. We see new exciting ideas all the time – it’s hard to be patient.
*Florian Buschek posts an update on diamond miner Diamcor (DMIFF). “Bryan and I talked to CEO Dean and COO Kurt. It was WELL worth it. Here is what we learned. . . “
*Scott Shuda feeds us, “Grains Cheaper than Before Invasion??” Along with many charts he says, “This is how Mr. Market works: Traders reacted to Russia’s invasion by spiking prices for grains. Now, with news that things will/might “return to normal” they’re selling en masse – driving prices below where they were before the invasion.”
*Streaming hit a record share of TV usage. It is now 33% of TV time. Cable and broadcast dipped. A good play on this industry in Harmonic (HLIT).
“Get well soon, Mr. President. You made it through the Spanish flu; you can make it through this.” — TREVOR NOAH
Good luck to all – Chris
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