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100 Baggers: Stocks That Return 100-to-1 and How To Find Them
This book is about 100-baggers. These are stocks that return $100 for every $1 invested. That means a $10,000 investment turns into $1 million. Chris Mayer can help you find them. It sounds like an outrageous quest with a wildly improbable chance of success. But when Mayer studied 100-baggers of the past, definite patterns emerged. In 100-Baggers, you will learn the key characteristics of 100-baggers why anybody can do this. It is truly an everyman's approach. You don't need an MBA or a finance degree. Some basic financial concepts are all you need a number of crutches or techniques that can help you get more out of your stocks and investing. The emphasis is always on the practical, so there are many stories and anecdotes to help illustrate important points. You should read this book if you want to get more out of your stocks. Even if you never get a 100-bagger, this book will help you turn up big winners and keep you away from losers and sleepy stocks that go nowhere.
224 pages, Paperback
First published January 1, 2015
372 people are currently reading
5509 people want to read
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October 10, 2021
This book got more interesting than I thought it would be starting out. I think the important thing to know going into this book is that it's copyright is held by Agora Financial. Agora is considered to be the top direct marketing company in the country and they employ some of the best copywriters to sell for them. This is their claim to fame, not their investment advice. For shits and giggles I've been on their mailing lists for years now, and they have predicted the entire collapse of the US and World economy more times than I can count. They are alarmist fear mongers who prey on a certain type of person who apparently is more than willing to keep buying products at high price points to protect their wealth against non-existent boogeymen rather than think for themselves and wisely invest that money instead of lining the pockets of a direct marketing behemoth. So passages in this book do align with that fear mongering, but fortunately it's kept to a minimum (and to be honest after the first chapter or so its no worse than most investing books for this type of thing).
The premise of this book is about how to find '100 Baggers', that would be stocks that increase ones investment 100 times. Like if you invested 1 dollar in something it would pay you back 100 dollars. He is using an earlier book entitled 100 to 1 in the Stock Market by Thomas Phelps as inspiration / jumping off point, or sort of writing a continuation of that earlier book by looking at more modern examples. I've only read parts of the earlier book, but it's big on the Buy and Hold forever strategy, which has a certain appeal. And Phelps books gives examples of people like the little old lady who bought a handful of high quality stocks when she was younger and then had made millions, and the poor shrewd investor who sold stocks in a company for another investment only to see the original stock become a 100 bagger if he had only held on for another 20 or so years. Of course the problem with anecdotal stories like this are it doesn't show the little old lady who bought garbage and was left with nothing or the investor who sold out of an Enron-esque stock near the top and was saved riding a loser into the ground.
But the problem with a lot of the examples given in this book are that they are after the fact winners, which the author addresses as basically saying he doesn't care (which shows he's aware of it, but as a reader you have to keep this in mind (not that he doesn't care, but that this is part of the make up of the study)). For example, in the book he says this, "The problem isn't only that we're impatient. It that the ride is not often easy... he pointed out that Apple from it's IPO in 1980 through 21012 ws a 225-Bagger. But... Those who held on had to suffer through a peak-to-trought loss of 80 percent-twice! The big move from 2008 came after a 60 percent drawdown. And thre were several 40 percent drops."
After the fact it's easy to see, of course one should hold on to Apple, they are fucking Apple. And of course when Amazon tanked after the Dotcom bubble one should have held on to Amazon, because they are fucking Amazon. They are Bezos and Jobs you don't bet against Bezos and Jobs, right? But... do you remember what Apple was in say 1998? If you don't or maybe weren't old enough to be alive or remember, their reputation was as that computer company that made those little computers we played Oregon Trail on at school which some pretentious hipster design kids liked using for Adobe products and Quark.
Or another example is Netflix, which seems obvious to hold on to in retrospect, but would you have held on to it when it dropped 80% in value over 4 months, or lost 25% of it's value in a single day? Or how about the fourth time it plummeted 25% in a single day? It would be interesting to see how many times a stock drops that much, that fast and makes it back to its previous high, never mind turn into a homerun.
The principles in the book sound good, invest in high quality companies that will use their capital wisely, which have owners who are personally invested in the company which has a nice moat that will repel invaders for the 10, 15, 20 years or more it takes to achieve the 100x returns you might be looking for, buy these unicorns when they aren't 'expensive' and then hold on to them through thick and thin.
And those are probably good principles but the book doesn't really give much in the way of how an average person would do this. There is enough populist rhetoric which will make you feel like you have a leg up on the establishment who aren't doing this kind of thing, but when it comes down to how the author finds his own 'unicorns' in real time he shows his hand in a sentence about three quarters of the way through the book that one might never actually notice. He uses a personal network of industry insiders that he has cultivated in over a decade of writing financial newsletters in order to uncover these companies with the right type of managers who are reinvesting their capital well.
The author is clear that this isn't an easy approach at one point, and says that it will take some luck and will involve some trial and error. Which makes sense, that's kind of a given that there is some luck involved and you are going to have to do some hands on learning (what trial and error is), but it's an 'everyman's approach' not look those 'esoteric' people highlighted in Market Wizards books or people like Nicholas Darvas with his crazy boxes (which is an interesting put down in the book's first chapter, since there is a part of the book where Darvas does attempt to follow the type of investing in 100 Baggers and finds that he loses money consistently when the market doesn't follow the conclusions he draws from his research into high quality companies). Of course this was in the first chapter when the Agora Rhetoric was at its peak and the author was firmly establishing his method as populist versus the elitism of other approaches, a hundred pages away from his admission that his network of insiders (page 147, "I talk to a lot of people in the course of a year - investors, executives, analysts and economists (side note: we shit on economists as not knowing what they are talking about a couple of chapters earlier, but whatever). Ideas can come from anywhere. But my best ideas often come from people.").
What I wondered about reading this book, and part of the Phelps book, is how does one actually 'learn' this style versus just getting lucky? If you are playing in a time frame that could be a decade or more, how many times do you get to be wrong as you learn? At what point do you pull the plug on a loser? When it's plummeted more than 80%? When it's lingering in penny stock territory and being threatened to be delisted? When it's about to go bankrupt? The 'crutch' given is to buy a number of potential 100 baggers and keep them in a metaphorical coffee can, and there will be some losers but you'll also have some winners? Will you really? Do you think it's possible you might end up picking duds or stocks that perform around or worse than the average?
If it weren't for the 'anyone' can do this, its so easy to beat the money managers and mutual funds first chapter of the book I think I wouldn't be so critical, but I feel like it's setting people up for failure especially since most of the examples given are obvious in retrospect but holding on to these stocks through their drawdowns sounds to much like the disastrous idea of cost averaging down. Critical parts aside the book does have a number of interesting points.
The premise of this book is about how to find '100 Baggers', that would be stocks that increase ones investment 100 times. Like if you invested 1 dollar in something it would pay you back 100 dollars. He is using an earlier book entitled 100 to 1 in the Stock Market by Thomas Phelps as inspiration / jumping off point, or sort of writing a continuation of that earlier book by looking at more modern examples. I've only read parts of the earlier book, but it's big on the Buy and Hold forever strategy, which has a certain appeal. And Phelps books gives examples of people like the little old lady who bought a handful of high quality stocks when she was younger and then had made millions, and the poor shrewd investor who sold stocks in a company for another investment only to see the original stock become a 100 bagger if he had only held on for another 20 or so years. Of course the problem with anecdotal stories like this are it doesn't show the little old lady who bought garbage and was left with nothing or the investor who sold out of an Enron-esque stock near the top and was saved riding a loser into the ground.
But the problem with a lot of the examples given in this book are that they are after the fact winners, which the author addresses as basically saying he doesn't care (which shows he's aware of it, but as a reader you have to keep this in mind (not that he doesn't care, but that this is part of the make up of the study)). For example, in the book he says this, "The problem isn't only that we're impatient. It that the ride is not often easy... he pointed out that Apple from it's IPO in 1980 through 21012 ws a 225-Bagger. But... Those who held on had to suffer through a peak-to-trought loss of 80 percent-twice! The big move from 2008 came after a 60 percent drawdown. And thre were several 40 percent drops."
After the fact it's easy to see, of course one should hold on to Apple, they are fucking Apple. And of course when Amazon tanked after the Dotcom bubble one should have held on to Amazon, because they are fucking Amazon. They are Bezos and Jobs you don't bet against Bezos and Jobs, right? But... do you remember what Apple was in say 1998? If you don't or maybe weren't old enough to be alive or remember, their reputation was as that computer company that made those little computers we played Oregon Trail on at school which some pretentious hipster design kids liked using for Adobe products and Quark.
Or another example is Netflix, which seems obvious to hold on to in retrospect, but would you have held on to it when it dropped 80% in value over 4 months, or lost 25% of it's value in a single day? Or how about the fourth time it plummeted 25% in a single day? It would be interesting to see how many times a stock drops that much, that fast and makes it back to its previous high, never mind turn into a homerun.
The principles in the book sound good, invest in high quality companies that will use their capital wisely, which have owners who are personally invested in the company which has a nice moat that will repel invaders for the 10, 15, 20 years or more it takes to achieve the 100x returns you might be looking for, buy these unicorns when they aren't 'expensive' and then hold on to them through thick and thin.
And those are probably good principles but the book doesn't really give much in the way of how an average person would do this. There is enough populist rhetoric which will make you feel like you have a leg up on the establishment who aren't doing this kind of thing, but when it comes down to how the author finds his own 'unicorns' in real time he shows his hand in a sentence about three quarters of the way through the book that one might never actually notice. He uses a personal network of industry insiders that he has cultivated in over a decade of writing financial newsletters in order to uncover these companies with the right type of managers who are reinvesting their capital well.
The author is clear that this isn't an easy approach at one point, and says that it will take some luck and will involve some trial and error. Which makes sense, that's kind of a given that there is some luck involved and you are going to have to do some hands on learning (what trial and error is), but it's an 'everyman's approach' not look those 'esoteric' people highlighted in Market Wizards books or people like Nicholas Darvas with his crazy boxes (which is an interesting put down in the book's first chapter, since there is a part of the book where Darvas does attempt to follow the type of investing in 100 Baggers and finds that he loses money consistently when the market doesn't follow the conclusions he draws from his research into high quality companies). Of course this was in the first chapter when the Agora Rhetoric was at its peak and the author was firmly establishing his method as populist versus the elitism of other approaches, a hundred pages away from his admission that his network of insiders (page 147, "I talk to a lot of people in the course of a year - investors, executives, analysts and economists (side note: we shit on economists as not knowing what they are talking about a couple of chapters earlier, but whatever). Ideas can come from anywhere. But my best ideas often come from people.").
What I wondered about reading this book, and part of the Phelps book, is how does one actually 'learn' this style versus just getting lucky? If you are playing in a time frame that could be a decade or more, how many times do you get to be wrong as you learn? At what point do you pull the plug on a loser? When it's plummeted more than 80%? When it's lingering in penny stock territory and being threatened to be delisted? When it's about to go bankrupt? The 'crutch' given is to buy a number of potential 100 baggers and keep them in a metaphorical coffee can, and there will be some losers but you'll also have some winners? Will you really? Do you think it's possible you might end up picking duds or stocks that perform around or worse than the average?
If it weren't for the 'anyone' can do this, its so easy to beat the money managers and mutual funds first chapter of the book I think I wouldn't be so critical, but I feel like it's setting people up for failure especially since most of the examples given are obvious in retrospect but holding on to these stocks through their drawdowns sounds to much like the disastrous idea of cost averaging down. Critical parts aside the book does have a number of interesting points.
February 17, 2021
Mohnish Pabrai on 100 baggers
https://www.youtube.com/watch?v=Jo1Xg...
Charlie Munger's case study on the inversion of Coca Cola
100x is a BIG idea
Buy right and hold on: The key is not only finding them, but keeping them.
Invest in long term enterprises which have the potential to vastly outpace other companies and industries and stick with them as long as the theme is intact. Forget about the trading and use the time you would have spent monitoring the trade with your family.
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.”
Patience is critical: "Inactivity bordering on sloth is the cornerstone of our investment approach." -Warren Buffett
100-bagger is the product of time and growth. To net a 100-bagger, you need to hang onto a quality stock for a number of years (10-30 yrs).
Buy right and sit tight: If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.
The story of Ronald Read (janitor at JC Penny who left behind a $8m estate) shows you the power of simple investing concepts: keeping fees low, investing in quality companies, reinvesting dividends and—most importantly for our purposes—the power of just holding on.
https://www.cnbc.com/2016/08/29/janit...
3 factors determines terminal wealth = fn(initial capital, compounding rate, length of runway)
“Does it deserve my capital?” - Li Lu
Great concept, great economics, great product
Vitamin vs antidote? What's the pain point? How large is the prize?
“Every human problem is an investment opportunity if you can anticipate the solution,”
It takes vision and imagination and a forward-looking view into what a business can achieve and how big it can get.
You need to have a long runway to grow.
Understanding how a company could create value in the years ahead. If you can’t see how or where a company adds value for customers in its business model, then you can be pretty sure that it won’t be a 100-bagger (or it is not within your circle of competence).
Great companies that will continue to be great. Wide moats.
Re: ‘Measuring the Moat’ Mike Mauboussin 2002
A truly great business must have an enduring “moat” that protects excellent returns on invested capital.
* Without shelf space for your products you are just a couple of people with ideas
* If you have a brand that catches on, grows, and hits scale, the costs start to slowly unwind
* It costs a lot to switch
* Network effects
* What matters is the amount of the market you need to capture to make it hard for others to compete
* Stable industries are more conducive to sustainable value creation
* Gross profit margins are surprisingly resilient and do not contribute meaningfully to fade rates
Growth, growth and more growth are what power these big movers
GROWTH in all its dimensions—sales, margin and valuation
Great stocks often offer extensive periods during which to buy them.
Earnings just seem to step higher and higher, like going up a staircase. All of these studies show us that past multi-baggers enjoyed strong growth for a long time.
There is no way around it. Almost all of the businesses in the 100-bagger study were substantially bigger businesses at the end than when they began.
Focus on growth in sales and earnings per share.
Find a business that has lots of room to expand—it’s what drives those reinvestment opportunities.
CAN SLIM by William O’Neil:
Current quarterly earnings momentum (accelerating earnings growth)
Annual earnings growth (growing earnings)
New products/services; Supply & demand;
Leader vs laggard;
Institutional sponsorship;
Market direction
https://en.wikipedia.org/wiki/CAN_SLIM
New methods, new materials and new products—things that improve life, that solve problems and allow us to do things better, faster and cheaper. There is also an admirable ethical streak - investing in companies that do something good for mankind.
Simple yardstick for company with favorable long-term prospects:
1 EPS growth accelerating
2 ROIC improving
Rapid increase in sales, rising profits and a rising ROE
GARP: Growth at the Right Price
S—Size is small Q—Quality is high for both business and management
G—Growth in earnings is high L—Longevity in both Q and G P—Price is favorable for good returns
A company can report a fall in earnings, but its longer-term earnings power could be unaffected.
Be fearful when others are greedy and greedy when others are fearful
You can’t just willy-nilly buy pricey growth stocks and expect to come up with 100-baggers.
When you get lots of growth and a low multiple you get the twin engine of 100-baggers. That’s where you really get some great lift, with both factors working in your favor.
"It's far better to buy a wonderful business at fair price than a fair business at a wonderful price." -Warren Buffett
You ought to prefer to pay a healthy price for a fast-growing, high-return business (such as Monster) than a cheap price for a mediocre
Good stocks are seldom without friends. Hence, they are rarely cheap in the usual sense. Don’t let a seemingly high initial multiple scare you away from a great stock.
Don't just go for cheap stocks. Go for stocks that appear expensive but are in fact undervalued if properly analyzed.
I like ideas where the story is not obvious from the numbers alone. I want to find that something else is going on in the business that makes it attractive.
The best ideas are often the simplest. Wonderful businesses with pricing power.
e.g. AMZN/BABA: online shopping is a tidal wave
e.g. GOOG = the new Altria
“Never invest in any idea you can’t illustrate with a crayon.” -Peter Lynch
Combination of rising earnings and a higher multiple: the truly big return comes when you have both earnings growth and a rising multiple. Ideally, you’d have both working for you.
A low entry price relative to the company’s long-term profit potential is critical.
Why Warren Buffett bought APPL - growth stock w/ room for multiple expansion
“Never if you can help it take an investment action for a non-investment reason.”
Studying 100-baggers, then, comes down to studying growth
Autozone 100x: Ho-hum growth rates of 2–5 percent. Yet AutoZone bought back huge sums of stock, which powered earnings-per-share growth of 25 percent a year.
But be leery of buybacks and no sales growth. If you have a company with tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere. IBM is a good example. Good ROE. Cheap. But the absence of top-line growth means the decline in share count has been offset by multiple contraction. As a result, the stock goes nowhere.
Management
“In the ultimate analysis, it is the management alone which is the 100x alchemist.”
Top-management teams that made good capital decisions about how to invest company resources. There was often a large shareholder or an entrepreneurial founder involved.
Constant desire to grow a business is a key characteristic
Honest, rational, competent and avoids institutional imperative
Decentralized organizations release entrepreneurial energies
LBO model: focus on cash flow. Use leverage to acquire more properties. Improve operations. Pay down debt. And repeat.
When done right, buybacks can accelerate the compounding of returns.
When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger.
When markets are high, there is no question that’s when the shysters like to come out and pick the pockets of complacent investors.
But when a man suspects any wrong, it sometimes happens that if he be already involved in the matter, he insensibly strives to cover up his suspicions even from himself.
“Whose bread I eat, his song I sing.” or “Don’t ask your barber if you need a haircut”
- [ ] Charlie Munger’s checklist against Psychology of Misjudgement
- [ ] First, do your work, and only then, talk with management
- [ ] Reading conference-call transcripts is better than listening to them
- [ ] Are questions ever evaded? Which ones?
- [ ] it’s the calls that go like this: “Great quarter, guys.” “Thanks, Mike.” If the transcript is filled with that and there are no pointed questions, then it “smells like a stage-managed call.
- [ ] Read several quarters at a time to look for disappearing initiatives, changes in language.
- [ ] Messy, indecipherable disclosures are clues to stay away. Obfuscation in accounting footnotes is a Red Flag.
ROIC
"Invert; always invert" -Charlie Munger
Finding what will become a 100-bagger is as much about knowing what not to buy as it is about knowing what to buy. The universe of what won’t work is large. Knocking out huge chunks of that universe will help make your search for 100-baggers easier.
“In Africa, where there are no antelope, there are no lions.”
“When looking for the biggest game, be not tempted to shoot at anything small.”
Don’t bother playing the game for eighths and quarters.
Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants. The 100-baggers.
Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.
We’re looking for companies with very high returns on capital. That’s one of the key requirements 100-baggers must meet.
Monster shows us the power of high sales growth and building a brand and the potent mix of high sales growth and rising profit margins and rising return on equity.
Return on capital is extremely important. If a company can continue to reinvest at high rates of return, the stock (and earnings) compound . . . getting you that parabolic effect.”
What are the reinvestment dynamics of this business ?
Businesses that can reinvest their free cash flow in a manner that continues to earn above-average returns. You need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
See something beyond the reported earnings e.g. AMZN: the power of sales growth and the ability to see something beyond the reported earnings.
How does the company finance its growth?
When a company can build book value per share over time at a high clip, that means it has the power to invest at high rates of return.
The rich have access to networks—through social and business connections—that give them better information. It helps them keep their edge over less connected peers.
Macro
Economists are probably the one group who make astrologers look like professionals when it comes to telling the future.
“Extraordinary performance comes only from correct non-consensus forecasts,”
We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen.
The idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.
Slumps are experiences to be lived through and survived with as much equanimity and patience as possible.
Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. . . . But, surprise—none of these blockbuster events made the slightest dent in Ben Graham’s investment principles.
Lower prices, as found in such disasters, create “easier” opportunities to make hundredfold returns.
In 2008, when the stock market tanked, many people I know were afraid to invest.
Risk of losing one's job makes it difficult to commit additional risk capital during economic depression
“General markets tend to come back strongly in periods subsequent to price crashes! That was the case in 1932, 1937, 1962, 1974–75, 1980–82, 1987 and 2001–2002. A comeback also seems likely after the unprecedented crash of 2007–2008.”
The ultimate permanent impairment is when a firm goes out of business.
The best inflation fighters are 100-baggers.
The ideal business during an inflationary time is one that can (a) raise prices easily and (b) doesn’t require investment in a lot of assets.
These intellectual businesses are wonderful investments in both inflationary and disinflationary environment
Asset-heavy businesses generally earn low rates of return rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses.
Destroy your best loved ideas
Looked forward to having his own ideas tested and knocked down:
I have no attachment to ideas. I have no problem changing my mind. In fact, I look forward to doing so and actively try to poke holes in my own ideas and theories. Be suspicious of abstractions.
Hunting for 100-baggers is completely independent of whatever is happening in the market. You should never stop looking for 100-baggers, bear market or bull.
Few bets, infrequent bets & big bets
Limiting his activities to buying only when he found intrinsic values far above stock prices.
Don’t be afraid to hold onto cash until you find those special 100-bagger opportunities. It’s good to have cash and not be afraid to buy when things look bad.
What is the "right" level of cash? Trade off b/w cash drag on returns vs cash optionality
Kelly's Formula/Kelly's Criterion = Expected net winnings / Net winnings if you win = edge/odds = W - [(1-W)/R] where W: winning probability; R: win/loss ratio
Better to own fewer stocks and more of your very best ideas than spread yourself too thin.
“Sorry to have gone too large on Elder Dempster. I was suffering from my chronic delusion that
one good share is safer than 10 bad ones.” -Lord Keynes
He rejected the idea, as Buffett and other great investors have, that you should dilute your best bets by holding a long list of stocks.
Tobin's Q/Sam Zell’s replacement cost
More zeal for consolidating businesses than for expanding them or initiating them. With stock prices low, the cash-rich investors in corporate America had a chance to steal some things. Why invest in new oil wells when you can buy them on the stock market for less than half of what it would cost you to drill new ones? Why build new factories when you can buy a competitor for 20 cents on the dollar?
Conversation w/ Chris Mayer - CFA India conference
https://11thiic2021.cfasocietyindia.l...
https://www.youtube.com/watch?v=Jo1Xg...
Charlie Munger's case study on the inversion of Coca Cola
100x is a BIG idea
Buy right and hold on: The key is not only finding them, but keeping them.
Invest in long term enterprises which have the potential to vastly outpace other companies and industries and stick with them as long as the theme is intact. Forget about the trading and use the time you would have spent monitoring the trade with your family.
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.”
Patience is critical: "Inactivity bordering on sloth is the cornerstone of our investment approach." -Warren Buffett
100-bagger is the product of time and growth. To net a 100-bagger, you need to hang onto a quality stock for a number of years (10-30 yrs).
Buy right and sit tight: If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.
The story of Ronald Read (janitor at JC Penny who left behind a $8m estate) shows you the power of simple investing concepts: keeping fees low, investing in quality companies, reinvesting dividends and—most importantly for our purposes—the power of just holding on.
https://www.cnbc.com/2016/08/29/janit...
3 factors determines terminal wealth = fn(initial capital, compounding rate, length of runway)
“Does it deserve my capital?” - Li Lu
Great concept, great economics, great product
Vitamin vs antidote? What's the pain point? How large is the prize?
“Every human problem is an investment opportunity if you can anticipate the solution,”
It takes vision and imagination and a forward-looking view into what a business can achieve and how big it can get.
You need to have a long runway to grow.
Understanding how a company could create value in the years ahead. If you can’t see how or where a company adds value for customers in its business model, then you can be pretty sure that it won’t be a 100-bagger (or it is not within your circle of competence).
Great companies that will continue to be great. Wide moats.
Re: ‘Measuring the Moat’ Mike Mauboussin 2002
A truly great business must have an enduring “moat” that protects excellent returns on invested capital.
* Without shelf space for your products you are just a couple of people with ideas
* If you have a brand that catches on, grows, and hits scale, the costs start to slowly unwind
* It costs a lot to switch
* Network effects
* What matters is the amount of the market you need to capture to make it hard for others to compete
* Stable industries are more conducive to sustainable value creation
* Gross profit margins are surprisingly resilient and do not contribute meaningfully to fade rates
Growth, growth and more growth are what power these big movers
GROWTH in all its dimensions—sales, margin and valuation
Great stocks often offer extensive periods during which to buy them.
Earnings just seem to step higher and higher, like going up a staircase. All of these studies show us that past multi-baggers enjoyed strong growth for a long time.
There is no way around it. Almost all of the businesses in the 100-bagger study were substantially bigger businesses at the end than when they began.
Focus on growth in sales and earnings per share.
Find a business that has lots of room to expand—it’s what drives those reinvestment opportunities.
CAN SLIM by William O’Neil:
Current quarterly earnings momentum (accelerating earnings growth)
Annual earnings growth (growing earnings)
New products/services; Supply & demand;
Leader vs laggard;
Institutional sponsorship;
Market direction
https://en.wikipedia.org/wiki/CAN_SLIM
New methods, new materials and new products—things that improve life, that solve problems and allow us to do things better, faster and cheaper. There is also an admirable ethical streak - investing in companies that do something good for mankind.
Simple yardstick for company with favorable long-term prospects:
1 EPS growth accelerating
2 ROIC improving
Rapid increase in sales, rising profits and a rising ROE
GARP: Growth at the Right Price
S—Size is small Q—Quality is high for both business and management
G—Growth in earnings is high L—Longevity in both Q and G P—Price is favorable for good returns
A company can report a fall in earnings, but its longer-term earnings power could be unaffected.
Be fearful when others are greedy and greedy when others are fearful
You can’t just willy-nilly buy pricey growth stocks and expect to come up with 100-baggers.
When you get lots of growth and a low multiple you get the twin engine of 100-baggers. That’s where you really get some great lift, with both factors working in your favor.
"It's far better to buy a wonderful business at fair price than a fair business at a wonderful price." -Warren Buffett
You ought to prefer to pay a healthy price for a fast-growing, high-return business (such as Monster) than a cheap price for a mediocre
Good stocks are seldom without friends. Hence, they are rarely cheap in the usual sense. Don’t let a seemingly high initial multiple scare you away from a great stock.
Don't just go for cheap stocks. Go for stocks that appear expensive but are in fact undervalued if properly analyzed.
I like ideas where the story is not obvious from the numbers alone. I want to find that something else is going on in the business that makes it attractive.
The best ideas are often the simplest. Wonderful businesses with pricing power.
e.g. AMZN/BABA: online shopping is a tidal wave
e.g. GOOG = the new Altria
“Never invest in any idea you can’t illustrate with a crayon.” -Peter Lynch
Combination of rising earnings and a higher multiple: the truly big return comes when you have both earnings growth and a rising multiple. Ideally, you’d have both working for you.
A low entry price relative to the company’s long-term profit potential is critical.
Why Warren Buffett bought APPL - growth stock w/ room for multiple expansion
“Never if you can help it take an investment action for a non-investment reason.”
Studying 100-baggers, then, comes down to studying growth
Autozone 100x: Ho-hum growth rates of 2–5 percent. Yet AutoZone bought back huge sums of stock, which powered earnings-per-share growth of 25 percent a year.
But be leery of buybacks and no sales growth. If you have a company with tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere. IBM is a good example. Good ROE. Cheap. But the absence of top-line growth means the decline in share count has been offset by multiple contraction. As a result, the stock goes nowhere.
Management
“In the ultimate analysis, it is the management alone which is the 100x alchemist.”
Top-management teams that made good capital decisions about how to invest company resources. There was often a large shareholder or an entrepreneurial founder involved.
Constant desire to grow a business is a key characteristic
Honest, rational, competent and avoids institutional imperative
Decentralized organizations release entrepreneurial energies
LBO model: focus on cash flow. Use leverage to acquire more properties. Improve operations. Pay down debt. And repeat.
When done right, buybacks can accelerate the compounding of returns.
When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger.
When markets are high, there is no question that’s when the shysters like to come out and pick the pockets of complacent investors.
But when a man suspects any wrong, it sometimes happens that if he be already involved in the matter, he insensibly strives to cover up his suspicions even from himself.
“Whose bread I eat, his song I sing.” or “Don’t ask your barber if you need a haircut”
- [ ] Charlie Munger’s checklist against Psychology of Misjudgement
- [ ] First, do your work, and only then, talk with management
- [ ] Reading conference-call transcripts is better than listening to them
- [ ] Are questions ever evaded? Which ones?
- [ ] it’s the calls that go like this: “Great quarter, guys.” “Thanks, Mike.” If the transcript is filled with that and there are no pointed questions, then it “smells like a stage-managed call.
- [ ] Read several quarters at a time to look for disappearing initiatives, changes in language.
- [ ] Messy, indecipherable disclosures are clues to stay away. Obfuscation in accounting footnotes is a Red Flag.
ROIC
"Invert; always invert" -Charlie Munger
Finding what will become a 100-bagger is as much about knowing what not to buy as it is about knowing what to buy. The universe of what won’t work is large. Knocking out huge chunks of that universe will help make your search for 100-baggers easier.
“In Africa, where there are no antelope, there are no lions.”
“When looking for the biggest game, be not tempted to shoot at anything small.”
Don’t bother playing the game for eighths and quarters.
Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants. The 100-baggers.
Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.
We’re looking for companies with very high returns on capital. That’s one of the key requirements 100-baggers must meet.
Monster shows us the power of high sales growth and building a brand and the potent mix of high sales growth and rising profit margins and rising return on equity.
Return on capital is extremely important. If a company can continue to reinvest at high rates of return, the stock (and earnings) compound . . . getting you that parabolic effect.”
What are the reinvestment dynamics of this business ?
Businesses that can reinvest their free cash flow in a manner that continues to earn above-average returns. You need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
See something beyond the reported earnings e.g. AMZN: the power of sales growth and the ability to see something beyond the reported earnings.
How does the company finance its growth?
When a company can build book value per share over time at a high clip, that means it has the power to invest at high rates of return.
The rich have access to networks—through social and business connections—that give them better information. It helps them keep their edge over less connected peers.
Macro
Economists are probably the one group who make astrologers look like professionals when it comes to telling the future.
“Extraordinary performance comes only from correct non-consensus forecasts,”
We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen.
The idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.
Slumps are experiences to be lived through and survived with as much equanimity and patience as possible.
Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. . . . But, surprise—none of these blockbuster events made the slightest dent in Ben Graham’s investment principles.
Lower prices, as found in such disasters, create “easier” opportunities to make hundredfold returns.
In 2008, when the stock market tanked, many people I know were afraid to invest.
Risk of losing one's job makes it difficult to commit additional risk capital during economic depression
“General markets tend to come back strongly in periods subsequent to price crashes! That was the case in 1932, 1937, 1962, 1974–75, 1980–82, 1987 and 2001–2002. A comeback also seems likely after the unprecedented crash of 2007–2008.”
The ultimate permanent impairment is when a firm goes out of business.
The best inflation fighters are 100-baggers.
The ideal business during an inflationary time is one that can (a) raise prices easily and (b) doesn’t require investment in a lot of assets.
These intellectual businesses are wonderful investments in both inflationary and disinflationary environment
Asset-heavy businesses generally earn low rates of return rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses.
Destroy your best loved ideas
Looked forward to having his own ideas tested and knocked down:
I have no attachment to ideas. I have no problem changing my mind. In fact, I look forward to doing so and actively try to poke holes in my own ideas and theories. Be suspicious of abstractions.
Hunting for 100-baggers is completely independent of whatever is happening in the market. You should never stop looking for 100-baggers, bear market or bull.
Few bets, infrequent bets & big bets
Limiting his activities to buying only when he found intrinsic values far above stock prices.
Don’t be afraid to hold onto cash until you find those special 100-bagger opportunities. It’s good to have cash and not be afraid to buy when things look bad.
What is the "right" level of cash? Trade off b/w cash drag on returns vs cash optionality
Kelly's Formula/Kelly's Criterion = Expected net winnings / Net winnings if you win = edge/odds = W - [(1-W)/R] where W: winning probability; R: win/loss ratio
Better to own fewer stocks and more of your very best ideas than spread yourself too thin.
“Sorry to have gone too large on Elder Dempster. I was suffering from my chronic delusion that
one good share is safer than 10 bad ones.” -Lord Keynes
He rejected the idea, as Buffett and other great investors have, that you should dilute your best bets by holding a long list of stocks.
Tobin's Q/Sam Zell’s replacement cost
More zeal for consolidating businesses than for expanding them or initiating them. With stock prices low, the cash-rich investors in corporate America had a chance to steal some things. Why invest in new oil wells when you can buy them on the stock market for less than half of what it would cost you to drill new ones? Why build new factories when you can buy a competitor for 20 cents on the dollar?
Conversation w/ Chris Mayer - CFA India conference
https://11thiic2021.cfasocietyindia.l...
December 20, 2015
Despite the silly title this book probably takes the most integrated approach to investing that I've seen in a while to identify the famed "compounders" that have been core to so many investor's success. I appreciated the quick looks at moat analysis, quantitative finance, "concept stocks", management incentives, capital allocation and behavioral finance to identify and benefit from owning great companies. Although it's nice to dream that these types of investments are easily identifiable, the author correctly acknowledged their rarity and that despite his attempts to craft a systematic framework to identify these investments, an investor does need some amount of luck to accomplish astronomical returns. Despite this caveat, it was a good, worthwhile and highly recommended read.
April 15, 2019
I find that this book is full of anecdotes, quotes and speculations rather than rigorous analysis. Some good general advices those.
March 11, 2023
In 1998, Andrew Wakefield and 12 of his colleagues published a case series in the "Lancet", which suggested that the MMR vaccine may cause behavioral regression and developmental disorder in children. The study was done on 12 children. Later evidence emerged of poor selection in picking children - trying to fit cases towards outcome. The study was retracted completely by Lancet by 2010.
You might see where this is going...
The scientific method to do a case study - at a bare minimum - is to pick the examples you want which need to be analyzed (treatment) and then compare them with a control group which has similar behaviors in quite a few other dimensions. Only then can you draw any tangible conclusions.
How to spot the next Amazon? Just spot the next Jeff Bezos if you will go by the philosophy of the book in true sense. And how to spot the next Jeff Bezos?
This book selectively picks stocks which turned to 100 baggers. There are insights into why the companies succeeded. But are we here to study about history of these amazing companies? No. Infact, the book does not pretend to be a biographical book of these companies. And that is the problem. There is no control group to compare these behaviors of the companies that turned 100 baggers.
Hence, you would get nothing out of this book except maybe a paper weight if you bought a hard copy. It is as effective in helping you select stocks as putting 100 stock names on pieces of papers and asking your dog to shit on one of them.
The author admits he does not care about discussing the companies that exhibited this behavior but still failed. Of course he can not. That would require extensive research. Which would require time and effort and brains. It is just a lazy and greedy effort to earn some money by putting a catchy title and having some fluff stuff into this sorry of a book. Stock market will always remain elusive and mystic and hence people will keep turning to books like these, thinking they can spot the next 100 bagger. (Shame on me!)
Don't waste your time. 0/5
You might see where this is going...
The scientific method to do a case study - at a bare minimum - is to pick the examples you want which need to be analyzed (treatment) and then compare them with a control group which has similar behaviors in quite a few other dimensions. Only then can you draw any tangible conclusions.
How to spot the next Amazon? Just spot the next Jeff Bezos if you will go by the philosophy of the book in true sense. And how to spot the next Jeff Bezos?
This book selectively picks stocks which turned to 100 baggers. There are insights into why the companies succeeded. But are we here to study about history of these amazing companies? No. Infact, the book does not pretend to be a biographical book of these companies. And that is the problem. There is no control group to compare these behaviors of the companies that turned 100 baggers.
Hence, you would get nothing out of this book except maybe a paper weight if you bought a hard copy. It is as effective in helping you select stocks as putting 100 stock names on pieces of papers and asking your dog to shit on one of them.
The author admits he does not care about discussing the companies that exhibited this behavior but still failed. Of course he can not. That would require extensive research. Which would require time and effort and brains. It is just a lazy and greedy effort to earn some money by putting a catchy title and having some fluff stuff into this sorry of a book. Stock market will always remain elusive and mystic and hence people will keep turning to books like these, thinking they can spot the next 100 bagger. (Shame on me!)
Don't waste your time. 0/5
May 17, 2021
“Over the course of an investing life, stuff is going to happen—both good and bad—that no one saw coming. Instead of playing the guessing game, focus on the opportunities in front of you. And there are always, in all markets, many opportunities."
I love this book. The study of 100 baggers is an interesting topic. From one side book gives you a lot of hope that it is not that hard to find 100 baggers. On the other hand there is no magic formula that can make it easier for you to identify them. There are however patterns - high growth, owner led with skin in the game, reinvesting profits, extensive moat etc. Mr Mayer did a great job explaining all of them in the book in an easy to understand and entertaining manner.
“I read every day somebody, somewhere writing about QE or interest rates or the dollar. They are mostly rehashing the same old narrative: “When QE stops, stocks will fall.” “The dollar is going to collapse!” “When interest rates go up, stocks will fall.” I mean, for crying out loud, how much more can you read about this stuff?"
Now all I need to do is identify some interesting companies, put them into a "coffee can" and let's see where I will be in 20 - 30 years!
I love this book. The study of 100 baggers is an interesting topic. From one side book gives you a lot of hope that it is not that hard to find 100 baggers. On the other hand there is no magic formula that can make it easier for you to identify them. There are however patterns - high growth, owner led with skin in the game, reinvesting profits, extensive moat etc. Mr Mayer did a great job explaining all of them in the book in an easy to understand and entertaining manner.
“I read every day somebody, somewhere writing about QE or interest rates or the dollar. They are mostly rehashing the same old narrative: “When QE stops, stocks will fall.” “The dollar is going to collapse!” “When interest rates go up, stocks will fall.” I mean, for crying out loud, how much more can you read about this stuff?"
Now all I need to do is identify some interesting companies, put them into a "coffee can" and let's see where I will be in 20 - 30 years!
March 16, 2023
my dad made me read this - I figured I don’t know anything about stocks and I thought I might learn something but it just convinced me more that this is all pseudoscience/gatekept lol …
Maybe this’d be useful for someone who is really into investing but I just found it extremely vague and contradictory in any of the actual guidance - also ofc no critical lens but maybe that’s not fair given the title 💀
Maybe this’d be useful for someone who is really into investing but I just found it extremely vague and contradictory in any of the actual guidance - also ofc no critical lens but maybe that’s not fair given the title 💀
May 14, 2021
Whilst the inherent nature of progression is to improve on the self inducing factor of money to returned self/capital, it is only that the transformative nature of managing oneself to compound and hold onto the reproducing benefits of patience over a lifetime the end of story.
August 9, 2021
It covers the factors that make a 100 bagger - good business, high return on capital, growth, fair valuation, competent management, etc. The most imp factor being, patience and the stomach to sit through decades. Very basic read, but good for a beginner.
March 4, 2019
Excellent book for micro-cap investors and stock pickers.
July 17, 2025
Solid investment book with sounds advice. Some key takeaways:
-Diversification is bad if you want outsized returns. (If you have a stock that returns 100 to 1 and it’s 5% of your portfolio, not going to be life changing.
-100 baggers are boring and take years to play out, average of more than 15 years. When you find a good company, sit on it and forget about it.
-Think of yourself as a true owner. If I bought this business, do I trust this CEO? Do I agree with his/her vision? Do I like the competitive (or lack there of) environment
-Is management’s incentives aligned with shareholders? Do they have stock based comp?
-“Duel engines” of outsized returns are multiple expansion and earnings growth
- Do they have a defensible moat? Can they generate outside returns for the next 2, 3, 4 decades? What’s stopping new competitors coming in and competing profits away?
This book reaffirmed my belief in long term investing as a practice of virtue. Christians might get turned off from the stock market from all of the sleezy people or traders buying a crazy tech stock hoping it’ll double so they can sell it to the guy behind him who is even more stupid. This is not investing but speculating… which is a sin. True investing should be boring, independent of the current hype, patient, and include a willingness to wait years for compounding to take effect. ^^None of this is in the book but just my own thoughts :)
-Diversification is bad if you want outsized returns. (If you have a stock that returns 100 to 1 and it’s 5% of your portfolio, not going to be life changing.
-100 baggers are boring and take years to play out, average of more than 15 years. When you find a good company, sit on it and forget about it.
-Think of yourself as a true owner. If I bought this business, do I trust this CEO? Do I agree with his/her vision? Do I like the competitive (or lack there of) environment
-Is management’s incentives aligned with shareholders? Do they have stock based comp?
-“Duel engines” of outsized returns are multiple expansion and earnings growth
- Do they have a defensible moat? Can they generate outside returns for the next 2, 3, 4 decades? What’s stopping new competitors coming in and competing profits away?
This book reaffirmed my belief in long term investing as a practice of virtue. Christians might get turned off from the stock market from all of the sleezy people or traders buying a crazy tech stock hoping it’ll double so they can sell it to the guy behind him who is even more stupid. This is not investing but speculating… which is a sin. True investing should be boring, independent of the current hype, patient, and include a willingness to wait years for compounding to take effect. ^^None of this is in the book but just my own thoughts :)
March 31, 2021
A truly great experience if you want to start reading about investing. It describes characteristics of astonishing investments and what they have in common with both anecdotical and empirical research. It manages to keep it simple while laying great value in its lessons.
February 2, 2023
A reminder of the simple but powerful compounding potential of fundamental bottom up investing. The author clearly summarizes what makes the best long term investments, and discusses ways for anyone to apply the principles required to achieve exceptional returns. Highly recommended for anyone interested in investments.
January 31, 2021
This book struggles with separating cause and effect. The author admits as much in the beginning. By identifying stocks that were 100 baggers and then explaining how they got there is deeply problematic since there is the problem of silent evidence - things that appeared important at various times in a company’s life but in retrospect were not. These stocks were (largely) not obvious winners at the time. This is my single biggest criticism and why I rated the book as I did.
What the author did make me realize was the importance of identifying companies not just based on their ROIC, but also on their ability to continue exploiting that high figure. If a company can’t reinvest its capital then it high rate is less meaningful for future compounding. I need to be much better in defining the potential market share of a company - and critically as the author mentions, smaller stocks have much more potential.
That said, the book does seem to imply that one should simply target 100 baggers and ignore other potential opportunities. I’m not convinced of this. Buffett waxes lyrical about Sees Candy which I understand had a fantastic return on capital (never requiring much reinvestment to maintain its dominant position), yet did not have room to grow. Is this really a bad thing... being given cash constantly to reinvest in other opportunities? Also, finding and being certain about great companies that could be 100 baggers is exceedingly rare. I think identifying some deeply discounted opportunities and making 2, 3, 4x money in a short period is tiring, yes, but can supplement a more sturdy long-term portfolio which could take many years to build. Knowing the difference between the long term holders and shorter term value plays is obviously key, and then selling the latter with discipline.
I’m personally sometimes lax in requiring management to be large shareholders. This seems a difficult requirement to have when searching for winners... I guess it provides more certainty that a winner is actually been found.
The other good thing about this book is it’s emphasis on paying a fair price for a good company. I struggle with this since I find my decision much easier when there is a large margin of safety. I understand a big discount in these companies is exceedingly rare so I may miss out. I guess until now I’ve been somewhat lazy to really apply my mind to the companies and their moats / potential to reinvest earnings. This needs to change!
What the author did make me realize was the importance of identifying companies not just based on their ROIC, but also on their ability to continue exploiting that high figure. If a company can’t reinvest its capital then it high rate is less meaningful for future compounding. I need to be much better in defining the potential market share of a company - and critically as the author mentions, smaller stocks have much more potential.
That said, the book does seem to imply that one should simply target 100 baggers and ignore other potential opportunities. I’m not convinced of this. Buffett waxes lyrical about Sees Candy which I understand had a fantastic return on capital (never requiring much reinvestment to maintain its dominant position), yet did not have room to grow. Is this really a bad thing... being given cash constantly to reinvest in other opportunities? Also, finding and being certain about great companies that could be 100 baggers is exceedingly rare. I think identifying some deeply discounted opportunities and making 2, 3, 4x money in a short period is tiring, yes, but can supplement a more sturdy long-term portfolio which could take many years to build. Knowing the difference between the long term holders and shorter term value plays is obviously key, and then selling the latter with discipline.
I’m personally sometimes lax in requiring management to be large shareholders. This seems a difficult requirement to have when searching for winners... I guess it provides more certainty that a winner is actually been found.
The other good thing about this book is it’s emphasis on paying a fair price for a good company. I struggle with this since I find my decision much easier when there is a large margin of safety. I understand a big discount in these companies is exceedingly rare so I may miss out. I guess until now I’ve been somewhat lazy to really apply my mind to the companies and their moats / potential to reinvest earnings. This needs to change!
June 14, 2019
This is one of my favorite books this year! It was recommended by Monish Pobrai, one of my favorite investors. It describes stocks that turn $1 into $100. Great soft rules you can look for to help you find these gems. Highly recommend!
April 2, 2016
Not so good
April 9, 2016
Review posted by me on LinkedIn:
https://www.linkedin.com/pulse/book-r...
https://www.linkedin.com/pulse/book-r...
March 6, 2024
Who isn't looking for a 100 bagger...imagine putting 10,000€ into an idea and letting it compound until you hit a staggering million. That's what smart investing is all about.
So, how do you achieve it? I do not want to spoil the book but one thing is obvious: It requires time and a lot of patience.
'100 Baggers and How to Find Them?' is a quick and easy read, summing up some of the most important factors in identifying future 100 Baggers by looking at past stocks that have achieved this.
Does this mean that you simply read this book, buy some stocks and become rich? No, it does not. But, this book is a great read to understand what it is that you must be looking out for. Mayer also discussed some investors' mindsets and how they approach it.
Overall, a simple but really well written book, I wished I read earlier. I enjoyed it!
So, how do you achieve it? I do not want to spoil the book but one thing is obvious: It requires time and a lot of patience.
'100 Baggers and How to Find Them?' is a quick and easy read, summing up some of the most important factors in identifying future 100 Baggers by looking at past stocks that have achieved this.
Does this mean that you simply read this book, buy some stocks and become rich? No, it does not. But, this book is a great read to understand what it is that you must be looking out for. Mayer also discussed some investors' mindsets and how they approach it.
Overall, a simple but really well written book, I wished I read earlier. I enjoyed it!
April 3, 2020
This was actually one of the best investment and business books Ive read. The title makes it sound like a corny get-rich-quick attempt. But reading a study of companies that have had phenomenal growth over 10-30 years is precisely how to know what to look for in anything, even if it's not a 100 bagger. Definitely will keep this one on the shelf.
January 6, 2024
The book provides some useful insights into what are the factors to look for to identify a 100 bagger in its making. For anyone who is serious about investing, 100 baggers is one of the books to read to understand how stocks which have performed well historically have shaped in terms of financials and qualitative factors such as management, product mix etc.
June 17, 2021
Hit me up if you have any 100 baggers up your sleeves =)
January 16, 2025
Simple. One of the best books on investing you can read.
September 6, 2022
Great summary of characteristics that make up long-term compounders that more than 10x in stock price. Doesn't go too much into the details to bore readers (pros and cons here), but gives sufficient context to outline key traits for investors to look out for.
Chapter 7 (Owner Operators: Skin in the game) stood out for personal reasons (MBP)
- "You can find all the names - a kind of ready-made watch list - by just looking at the fund's holdings, which it disclosed publicly"
- "The most important idea though, is that the people calling the shots have personal capital at risk. That's the unique attribute that runs through all these stories. That's the secret behind the money"
Chapter 7 (Owner Operators: Skin in the game) stood out for personal reasons (MBP)
- "You can find all the names - a kind of ready-made watch list - by just looking at the fund's holdings, which it disclosed publicly"
- "The most important idea though, is that the people calling the shots have personal capital at risk. That's the unique attribute that runs through all these stories. That's the secret behind the money"
This entire review has been hidden because of spoilers.
May 7, 2024
Overview:
The book has a lot of wisdom accumulated from multiple sources collated specifically with respect to multi-baggers and that’s where it stands.
So, if you’re someone who trades/invests, then it might be of great value to you undoubtedly.
Though the author tries to educate us about finding those multi-baggers, there were just too many notes that come from others in the form of quotes or so, which further wants us to read those referenced books, articles, and reports.
Some parts of the book feel contradictory & funny where in one chapter, it draws out points from MOTILALOFS’s report whereas, in the other chapter, the author says not to trust the reports from banks or brokerage houses.
Overall, it’s a must-read for those who invest, which I suppose is everybody.
My Notes & excerpts from the book:
“He talked about how his friend Karl Pettit—an industrialist, inventor and investor—sold his shares of IBM stock many years ago to start his brokerage business. He sold them for a million bucks. That stake would eventually go on to be worth $2 billion—more than he ever made in his brokerage business.”
Multibagger points
“He looked at 19 such 100-baggers. He drew four conclusions, which I excerpt below:
• The most powerful stock moves tended to be during extended periods of growing earnings accompanied by an expansion of the P/E ratio.
• These periods of P/E expansion often seem to coincide with periods of accelerating earnings growth.
• Some of the most attractive opportunities occur in beaten-down, forgotten stocks, which perhaps after years of losses are returning to profitability.
• During such periods of rapid share price appreciation, stock prices can reach lofty P/E ratios. This shouldn’t necessarily deter one from continuing to hold the stock.”
Multibagger happens when earnings & P/E expansion occurrs
“Earnings per share grew by a factor of 12.4x. But if the company only grew earnings by 12.4x, how did the stock grow 100x? The answer lies in the price to earnings (P/E) multiple expansion. Investors in MTY went from paying roughly 3.5x earnings when it was left for dead in 2003 to a more optimistic 26x earnings in 2013.”
MOTILALOFS study on multibaggers
“one such study exists. A firm called Motilal Oswal put together a study of 100-baggers in India. Published in December 2014, the authors of the report also found their inspiration in Phelps’s work and dedicated their report to him.
It’s a fine report, and there is much wisdom in it. “Very few investors even conceptualize their equity investment multiplying 100 times,” they wrote. “Even fewer actually experience a 100-fold rise in the price of their stock(s). This is because such 100-fold rises may take longer than three, five or even 10 years’ time. And holding onto stocks beyond that period requires patience.””
Phelps book
“in Thomas Phelps’s book 100 to 1 in the Stock Market. MartellicitedGeorgeF.Baker’s(1840–1931)dictum,mentionedinPhelps’s book, that summarizes the idea:
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” Accord- ing to Phelps, “patience is the rarest of the three.””
Explanation of earnings and P/E multiple expansion with an example
“Let’s say we have two companies, A and B. Both start with $1 in earn- ings per share. Both will earn $20 in earnings per share in their twentieth year. And let’s say at the end of year 10, both stocks will trade for $500 per share, or 25 times earnings.
Now, let’s say in year one you can buy A for 5 times earnings, or $5 per share. And B you can buy for 50 times earnings, or $50. At the end of 20 years, you’ll have a 100-bagger in A. Earnings will have gone up twentyfold and the price–earnings ratio fivefold. The combination gets you a 100-bagger.
In B, you’ll have a 10-bagger after 20 years. That’s not bad, but it’s way worse than a 100-bagger. A $10,000 investment in A will turn into $1 million at the end of 20 years. A $10,000 investment in B will become $100,000.
So, it may seem that the price paid did not matter. Certainly, few would complain about a 10-bagger. But the truly big return comes when you have both earnings growth and a rising multiple. Ideally, you’d have both working for you.”
Interesting analytics data for men vs feminine differentiation
“They also took advantage of their brand identity. “Their studies showed that drinkers of 16oz energy beverages tended to be men,” Yoda writes. No surprise, given their black can and bear-clawed M. “They also found that using words like ‘sugar free,’ or ‘diet’ were perceived to be fem- inine, along with light/white/silver colored cans; according to their data.”
Highlights how just trusting in the founder’s vision and the growth of the sector itself would’ve been beneficial (ignoring the earnings where the company keeps reinvesting in R&D & stuff)
“If you trust in Bezos, you’re okay with the company having razor thin operating margins. In 2014, operating margins were 0.20%. Adding back R&D, however, gets you an adjusted operating margin of 10%. I showed in the table above how remarkably consistent this trend is.
Making a fundamental case for Amazon, and getting a 100-bag- ger, would be very hard to do. Your best bet was to buy at the IPO and bet purely on growing retail sales. That chart on internet sales and trust in Bezos would be the keys to your thesis.”
Explanation of how ROE plays a vital role
“Jason starts his process by screening the market, looking for high-ROE stocks. “If a company has a high ROE for four or five years in a row—and earned it not with leverage but from high profit margins—that’s a great place to start,” he said.
But ROE alone does not suffice. Jason looks for another key element that mixes well for creating multibaggers. “The second piece requires some feel and judgment. It is the capital allocation skills of the manage- ment team,” he said. Here he ran through an example.
Say we have a business with $100 million in equity, and we make a $20 million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in the first year and then 15 percent as the cash earning a 2 percent return blends in with the business earning a 20 percent return,” Jason said. “So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
A lot of people don’t appreciate how important the ability to reinvest those profits and earn a high ROE is. Jason told me when he talks to management, this is the main thing he wants to talk about: How are you investing the cash the business generates? Forget about your growth pro- file. Let’s talk about your last five acquisitions!
The ROE doesn’t have to be a straight line. Jason used the example of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good year it’s 30 percent, then that counts as a 20 percent average.”
Nice view of Owner operated businesses
“On this topic, there is a wealth of research and practical experience. On the research front, here are a few relevant studies:
• Joel Shulman and Erik Noyes (2012) looked at the historical stock-price performance of companies managed by the world’s billionaires. They found these companies outperformed the in- dex by 700 basis points (or 7 percent annually).
• Ruediger Fahlenbrach (2009) looked at founder-led CEOs and found they invested more in research and development than other CEOs and focused on building shareholder value rather than on making value-destroying acquisitions.
• Henry McVey and Jason Draho (2005) looked at companies con- trolled by families and found they avoided quarterly-earnings guidance. Instead, they focused on long-term value creation and outperformed their peers.
There is much more, but you get the idea. People with their own wealth at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms.”
Nice idea. Wealth index to track the founder/owner operated businesses
“Here’s Matt: “Murray and I were batting ideas around one day and we said, ‘Wouldn’t it be cool if you could invest in some of these wealth lists like the Forbes 400? I wonder what it would look like.’ And that’s kind of how we got started.”
The Wealth Index was the result and is what the fund seeks to mimic. To get in the index, owner-operators must have assets in excess of $500 million and ownership in excess of $100 million. Applying this filter leaves 148 owner-operators with proven track records. Building this list was not easy—and perhaps that explains the fund’s uniqueness.”
A summary of how Berkshire’s success was because of float from the insurance business
““The amount of leverage in Berkshire’s capital structure amounted to 37.5% of total capital on average,” Chirkova writes. That would surprise most people.
This leverage came from insurance float. Buffett owned, and still owns, insurance companies. It’s a big part of Berkshire’s business. As an insurer, you collect premiums upfront and pay claims later. In the interim, you get to invest that money. Any gains you make are yours to keep.
And if your premiums exceed the claims you pay, you keep that too. That’s called an underwriting profit.
Everybody knows this part of the story: Buffett invested the float. What people may not know is just how cheap that source of funds was over time. To put it in a thimble: Buffett consistently borrowed money at rates lower than even the US government.
How is that possible? If premiums exceed claims, then Buffett effec- tively borrowed money at a negative rate of interest. He took in premiums. He invested the money. He kept all the profits. And when he repaid the money (by paying claims), he often paid back less than he borrowed.
From 1965, according to one study, Berkshire had a negative cost of borrowing in 29 out of 47 years. Chirkova cites another study that puts Berkshire’s cost of borrowing at an average of 2.2 percent—about three points lower than the yield on Treasury bills over the same period.
This is the key to Berkshire’s success. It’s hard not to do well when nearly 40 percent of your capital is almost free. This doesn’t mean insur- ance is an easy ticket to riches. Berkshire was smart about what insurance risks it took. That means it had to shrink when the risk and reward got out of whack, which it frequently did (and does).
For example, look at National Indemnity. It is Berkshire’s oldest sub- sidiary. In 1986, NI brought in $366 million in premiums. Then from 1989 to 2000, NI never collected more than $100 million in premiums.”
Summary of Buffet’s success
“summing up here, there are three key points:
1. Buffett used other people’s money to get rich.
2. He borrowed that money often at negative rates and, on average, paid rates well below what the US Treasury paid.
3. To pay those low rates required the willingness to step away from the market when the risk and reward got out of whack.
I wonder why more people don’t try to emulate Berkshire. It seems, given the success, there should be more firms using insurance float as Buffett did. Most insurers just put their float in bonds. And they try to compete with other insurers on rates.
It’s true there is only one Warren Buffett. And it’s also true luck plays a role, as it always must. Even Munger admits that Berkshire’s success has been so grand that he doubts Buffett himself could recreate it if you gave him his youth back and a smaller base of capital.
Even so, Munger writes, “I believe that versions of the Berkshire sys- tem should be tried more often elsewhere.”
I do too. An 18,000-bagger is outrageous.”
Hearing about tontine, for the first time, this is probably the origination of the insurance
“What is a “tontine”? If you think a tontine is a rich French pastry, you’re half right. It is
indeed French. But a tontine is not a pastry. It is, instead, a tactic for amassing riches that is both legal and non-
fattening. But first, I’d like to tell you about a guy named Lorenzo Tonti, from whom the word—tontine—derives.
Imagine the scene. The year is 1652. The place: France, during the reign of the House of Bourbon. King Louis XIV broods on his throne. The French treasury is bare.
Meanwhile, there is an ongoing war with Spain, and he needs money to continue it.
He invites Lorenzo de Tonti, a banker from Naples, to his decadent court. Tonti has an idea.
“Let us have citizens invest in shares of a government-run pool,” Tonti suggests. “We will pay regular dividends to them from the pool. But they cannot transfer or sell their shares. And when they die, they lose their shares. We cancel them.” Tonti’s eyes narrow, and he tugs thoughtfully at one of his whiskers.”
An example stock where its outstanding shares declining is proportional to its share price performance
“AutoNation is up 520
percent since the tontine began. Annualized, that’s better than 15 percent per year—for 13 years! The chart above shows you the last 10 years. You can see the fall in shares outstanding and the surge in the stock price.”
About moats (read the summary below for the moats list)
“items that last longer are typically able to command higher prices. . . . The same concept applies in the stock market.”
Companies that are more durable are more valuable. And moats make companies durable by keeping competitors out. A company with a moat can sustain high returns for longer than one without. That also means it can reinvest those profits at higher rates than competitors. As you’ve seen by now, this is an important part of the 100-bagger recipe.”
A good point to explain moats (aka to keep competitors out)
“The aforementioned Berry made an interesting point here about the size of the firm relative to the market: “Imagine a market where the fixed costs are high, and prices are low. Imagine that prices are so low that you need 55% of the market just to break even. How many competitors will that market support? One. Not two, not three . . . one.”
The firm that gets that 55 percent is in a commanding position. It can keep prices just high enough that it can keep others out and earn a good return. “What matters is the amount of the market you need to capture to make it hard for others to compete,” Berry points out.”
About “Measuring the Moat”
“Michael Mauboussin, a strategist at Credit Suisse, has also done some good work on moats. “Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation” is a 70-page report on the issue.”
Reason to not trust the banks/brokers advice
“the investment banks have an incentive to sell financial prod- ucts—stocks, bonds, and so on. They are not looking out for your interest. If you don’t know this by now, here it is: don’t look to research put out by investment banks or brokerage houses as a source of advice on where
you should invest.”
About investing abroad to escape known risk and ignoring unknown risks
“Phelps made a good point in his book that I will repeat here. He said
when we invest abroad we often trade risks we see for risks we can’t see or are not aware of. Be mindful of this. Many investors have had their heads handed to them in far-off lands that seemed alluring. It’s happened to me more than once.”
Keynes, the investor’s approach
Read the below para for his summary
“Essentially, he switched from a macro market-timing approach to bottom-up stock-picking.
In a memorandum in May of 1938, Keynes offered the best summing up of his own philosophy:
1. careful selection of a few investments (or a few types of invest- ment) based on their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments;
2. a steadfast holding of these investments in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it has become evident that their purchase was a mistake; and
3. 3. a balanced investment position, that is, a portfolio exposed to a variety of risks in spite of individual holdings being large, and if possible, opposed risks.
Here is one last bit of advice from the same memo:
In the main, therefore, slumps are experiences to be lived through and survived with as much equanimity and patience as possible. Advantage can be taken of them more because individual securities fall out of their reasonable parity with other securities on such occa- sions, than by attempts at wholesale shifts into and out of equities as a whole. One must not allow one’s attitude to securities which have a daily market quotation to be disturbed by this fact.
If these ideas were good enough for the Great Depression, they’re good enough for whatever comes next now.”
Feldman’s law of depression investing.
“was General Electric really worth only $8.50 a share in 1932? How about Warner Brothers at 50 cents? No.
After the crash, people and businesses did cut back. There was also consolidation among businesses. In the 1930s, Allen notes, there was “more zeal for consolidating businesses than for expanding them or ini- tiating them.” With stock prices low, the cash-rich investors in corporate America had a chance to steal some things. Why invest in new oil wells when you can buy them on the stock market for less than half of what it would cost you to drill new ones? Why build new factories when you can buy a competitor for 20 cents on the dollar?
The aftermath of the crash is a good time to buy—with an important caveat, as Feldman points out: “Stock prices were so low that so long as a company did not go out of business, practically anything you might buy was certain to go up, if not sooner, then later.” (italics added)
We might call this “Feldman’s law of depression investing.”“
Nice analogy for weeding out the winners
“investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss. But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock. To truncate that upside because you are afraid to lose is like spending a lot of money on a car but never taking it out of the garage.”
The book has a lot of wisdom accumulated from multiple sources collated specifically with respect to multi-baggers and that’s where it stands.
So, if you’re someone who trades/invests, then it might be of great value to you undoubtedly.
Though the author tries to educate us about finding those multi-baggers, there were just too many notes that come from others in the form of quotes or so, which further wants us to read those referenced books, articles, and reports.
Some parts of the book feel contradictory & funny where in one chapter, it draws out points from MOTILALOFS’s report whereas, in the other chapter, the author says not to trust the reports from banks or brokerage houses.
Overall, it’s a must-read for those who invest, which I suppose is everybody.
My Notes & excerpts from the book:
“He talked about how his friend Karl Pettit—an industrialist, inventor and investor—sold his shares of IBM stock many years ago to start his brokerage business. He sold them for a million bucks. That stake would eventually go on to be worth $2 billion—more than he ever made in his brokerage business.”
Multibagger points
“He looked at 19 such 100-baggers. He drew four conclusions, which I excerpt below:
• The most powerful stock moves tended to be during extended periods of growing earnings accompanied by an expansion of the P/E ratio.
• These periods of P/E expansion often seem to coincide with periods of accelerating earnings growth.
• Some of the most attractive opportunities occur in beaten-down, forgotten stocks, which perhaps after years of losses are returning to profitability.
• During such periods of rapid share price appreciation, stock prices can reach lofty P/E ratios. This shouldn’t necessarily deter one from continuing to hold the stock.”
Multibagger happens when earnings & P/E expansion occurrs
“Earnings per share grew by a factor of 12.4x. But if the company only grew earnings by 12.4x, how did the stock grow 100x? The answer lies in the price to earnings (P/E) multiple expansion. Investors in MTY went from paying roughly 3.5x earnings when it was left for dead in 2003 to a more optimistic 26x earnings in 2013.”
MOTILALOFS study on multibaggers
“one such study exists. A firm called Motilal Oswal put together a study of 100-baggers in India. Published in December 2014, the authors of the report also found their inspiration in Phelps’s work and dedicated their report to him.
It’s a fine report, and there is much wisdom in it. “Very few investors even conceptualize their equity investment multiplying 100 times,” they wrote. “Even fewer actually experience a 100-fold rise in the price of their stock(s). This is because such 100-fold rises may take longer than three, five or even 10 years’ time. And holding onto stocks beyond that period requires patience.””
Phelps book
“in Thomas Phelps’s book 100 to 1 in the Stock Market. MartellicitedGeorgeF.Baker’s(1840–1931)dictum,mentionedinPhelps’s book, that summarizes the idea:
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” Accord- ing to Phelps, “patience is the rarest of the three.””
Explanation of earnings and P/E multiple expansion with an example
“Let’s say we have two companies, A and B. Both start with $1 in earn- ings per share. Both will earn $20 in earnings per share in their twentieth year. And let’s say at the end of year 10, both stocks will trade for $500 per share, or 25 times earnings.
Now, let’s say in year one you can buy A for 5 times earnings, or $5 per share. And B you can buy for 50 times earnings, or $50. At the end of 20 years, you’ll have a 100-bagger in A. Earnings will have gone up twentyfold and the price–earnings ratio fivefold. The combination gets you a 100-bagger.
In B, you’ll have a 10-bagger after 20 years. That’s not bad, but it’s way worse than a 100-bagger. A $10,000 investment in A will turn into $1 million at the end of 20 years. A $10,000 investment in B will become $100,000.
So, it may seem that the price paid did not matter. Certainly, few would complain about a 10-bagger. But the truly big return comes when you have both earnings growth and a rising multiple. Ideally, you’d have both working for you.”
Interesting analytics data for men vs feminine differentiation
“They also took advantage of their brand identity. “Their studies showed that drinkers of 16oz energy beverages tended to be men,” Yoda writes. No surprise, given their black can and bear-clawed M. “They also found that using words like ‘sugar free,’ or ‘diet’ were perceived to be fem- inine, along with light/white/silver colored cans; according to their data.”
Highlights how just trusting in the founder’s vision and the growth of the sector itself would’ve been beneficial (ignoring the earnings where the company keeps reinvesting in R&D & stuff)
“If you trust in Bezos, you’re okay with the company having razor thin operating margins. In 2014, operating margins were 0.20%. Adding back R&D, however, gets you an adjusted operating margin of 10%. I showed in the table above how remarkably consistent this trend is.
Making a fundamental case for Amazon, and getting a 100-bag- ger, would be very hard to do. Your best bet was to buy at the IPO and bet purely on growing retail sales. That chart on internet sales and trust in Bezos would be the keys to your thesis.”
Explanation of how ROE plays a vital role
“Jason starts his process by screening the market, looking for high-ROE stocks. “If a company has a high ROE for four or five years in a row—and earned it not with leverage but from high profit margins—that’s a great place to start,” he said.
But ROE alone does not suffice. Jason looks for another key element that mixes well for creating multibaggers. “The second piece requires some feel and judgment. It is the capital allocation skills of the manage- ment team,” he said. Here he ran through an example.
Say we have a business with $100 million in equity, and we make a $20 million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in the first year and then 15 percent as the cash earning a 2 percent return blends in with the business earning a 20 percent return,” Jason said. “So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
A lot of people don’t appreciate how important the ability to reinvest those profits and earn a high ROE is. Jason told me when he talks to management, this is the main thing he wants to talk about: How are you investing the cash the business generates? Forget about your growth pro- file. Let’s talk about your last five acquisitions!
The ROE doesn’t have to be a straight line. Jason used the example of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good year it’s 30 percent, then that counts as a 20 percent average.”
Nice view of Owner operated businesses
“On this topic, there is a wealth of research and practical experience. On the research front, here are a few relevant studies:
• Joel Shulman and Erik Noyes (2012) looked at the historical stock-price performance of companies managed by the world’s billionaires. They found these companies outperformed the in- dex by 700 basis points (or 7 percent annually).
• Ruediger Fahlenbrach (2009) looked at founder-led CEOs and found they invested more in research and development than other CEOs and focused on building shareholder value rather than on making value-destroying acquisitions.
• Henry McVey and Jason Draho (2005) looked at companies con- trolled by families and found they avoided quarterly-earnings guidance. Instead, they focused on long-term value creation and outperformed their peers.
There is much more, but you get the idea. People with their own wealth at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms.”
Nice idea. Wealth index to track the founder/owner operated businesses
“Here’s Matt: “Murray and I were batting ideas around one day and we said, ‘Wouldn’t it be cool if you could invest in some of these wealth lists like the Forbes 400? I wonder what it would look like.’ And that’s kind of how we got started.”
The Wealth Index was the result and is what the fund seeks to mimic. To get in the index, owner-operators must have assets in excess of $500 million and ownership in excess of $100 million. Applying this filter leaves 148 owner-operators with proven track records. Building this list was not easy—and perhaps that explains the fund’s uniqueness.”
A summary of how Berkshire’s success was because of float from the insurance business
““The amount of leverage in Berkshire’s capital structure amounted to 37.5% of total capital on average,” Chirkova writes. That would surprise most people.
This leverage came from insurance float. Buffett owned, and still owns, insurance companies. It’s a big part of Berkshire’s business. As an insurer, you collect premiums upfront and pay claims later. In the interim, you get to invest that money. Any gains you make are yours to keep.
And if your premiums exceed the claims you pay, you keep that too. That’s called an underwriting profit.
Everybody knows this part of the story: Buffett invested the float. What people may not know is just how cheap that source of funds was over time. To put it in a thimble: Buffett consistently borrowed money at rates lower than even the US government.
How is that possible? If premiums exceed claims, then Buffett effec- tively borrowed money at a negative rate of interest. He took in premiums. He invested the money. He kept all the profits. And when he repaid the money (by paying claims), he often paid back less than he borrowed.
From 1965, according to one study, Berkshire had a negative cost of borrowing in 29 out of 47 years. Chirkova cites another study that puts Berkshire’s cost of borrowing at an average of 2.2 percent—about three points lower than the yield on Treasury bills over the same period.
This is the key to Berkshire’s success. It’s hard not to do well when nearly 40 percent of your capital is almost free. This doesn’t mean insur- ance is an easy ticket to riches. Berkshire was smart about what insurance risks it took. That means it had to shrink when the risk and reward got out of whack, which it frequently did (and does).
For example, look at National Indemnity. It is Berkshire’s oldest sub- sidiary. In 1986, NI brought in $366 million in premiums. Then from 1989 to 2000, NI never collected more than $100 million in premiums.”
Summary of Buffet’s success
“summing up here, there are three key points:
1. Buffett used other people’s money to get rich.
2. He borrowed that money often at negative rates and, on average, paid rates well below what the US Treasury paid.
3. To pay those low rates required the willingness to step away from the market when the risk and reward got out of whack.
I wonder why more people don’t try to emulate Berkshire. It seems, given the success, there should be more firms using insurance float as Buffett did. Most insurers just put their float in bonds. And they try to compete with other insurers on rates.
It’s true there is only one Warren Buffett. And it’s also true luck plays a role, as it always must. Even Munger admits that Berkshire’s success has been so grand that he doubts Buffett himself could recreate it if you gave him his youth back and a smaller base of capital.
Even so, Munger writes, “I believe that versions of the Berkshire sys- tem should be tried more often elsewhere.”
I do too. An 18,000-bagger is outrageous.”
Hearing about tontine, for the first time, this is probably the origination of the insurance
“What is a “tontine”? If you think a tontine is a rich French pastry, you’re half right. It is
indeed French. But a tontine is not a pastry. It is, instead, a tactic for amassing riches that is both legal and non-
fattening. But first, I’d like to tell you about a guy named Lorenzo Tonti, from whom the word—tontine—derives.
Imagine the scene. The year is 1652. The place: France, during the reign of the House of Bourbon. King Louis XIV broods on his throne. The French treasury is bare.
Meanwhile, there is an ongoing war with Spain, and he needs money to continue it.
He invites Lorenzo de Tonti, a banker from Naples, to his decadent court. Tonti has an idea.
“Let us have citizens invest in shares of a government-run pool,” Tonti suggests. “We will pay regular dividends to them from the pool. But they cannot transfer or sell their shares. And when they die, they lose their shares. We cancel them.” Tonti’s eyes narrow, and he tugs thoughtfully at one of his whiskers.”
An example stock where its outstanding shares declining is proportional to its share price performance
“AutoNation is up 520
percent since the tontine began. Annualized, that’s better than 15 percent per year—for 13 years! The chart above shows you the last 10 years. You can see the fall in shares outstanding and the surge in the stock price.”
About moats (read the summary below for the moats list)
“items that last longer are typically able to command higher prices. . . . The same concept applies in the stock market.”
Companies that are more durable are more valuable. And moats make companies durable by keeping competitors out. A company with a moat can sustain high returns for longer than one without. That also means it can reinvest those profits at higher rates than competitors. As you’ve seen by now, this is an important part of the 100-bagger recipe.”
A good point to explain moats (aka to keep competitors out)
“The aforementioned Berry made an interesting point here about the size of the firm relative to the market: “Imagine a market where the fixed costs are high, and prices are low. Imagine that prices are so low that you need 55% of the market just to break even. How many competitors will that market support? One. Not two, not three . . . one.”
The firm that gets that 55 percent is in a commanding position. It can keep prices just high enough that it can keep others out and earn a good return. “What matters is the amount of the market you need to capture to make it hard for others to compete,” Berry points out.”
About “Measuring the Moat”
“Michael Mauboussin, a strategist at Credit Suisse, has also done some good work on moats. “Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation” is a 70-page report on the issue.”
Reason to not trust the banks/brokers advice
“the investment banks have an incentive to sell financial prod- ucts—stocks, bonds, and so on. They are not looking out for your interest. If you don’t know this by now, here it is: don’t look to research put out by investment banks or brokerage houses as a source of advice on where
you should invest.”
About investing abroad to escape known risk and ignoring unknown risks
“Phelps made a good point in his book that I will repeat here. He said
when we invest abroad we often trade risks we see for risks we can’t see or are not aware of. Be mindful of this. Many investors have had their heads handed to them in far-off lands that seemed alluring. It’s happened to me more than once.”
Keynes, the investor’s approach
Read the below para for his summary
“Essentially, he switched from a macro market-timing approach to bottom-up stock-picking.
In a memorandum in May of 1938, Keynes offered the best summing up of his own philosophy:
1. careful selection of a few investments (or a few types of invest- ment) based on their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments;
2. a steadfast holding of these investments in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it has become evident that their purchase was a mistake; and
3. 3. a balanced investment position, that is, a portfolio exposed to a variety of risks in spite of individual holdings being large, and if possible, opposed risks.
Here is one last bit of advice from the same memo:
In the main, therefore, slumps are experiences to be lived through and survived with as much equanimity and patience as possible. Advantage can be taken of them more because individual securities fall out of their reasonable parity with other securities on such occa- sions, than by attempts at wholesale shifts into and out of equities as a whole. One must not allow one’s attitude to securities which have a daily market quotation to be disturbed by this fact.
If these ideas were good enough for the Great Depression, they’re good enough for whatever comes next now.”
Feldman’s law of depression investing.
“was General Electric really worth only $8.50 a share in 1932? How about Warner Brothers at 50 cents? No.
After the crash, people and businesses did cut back. There was also consolidation among businesses. In the 1930s, Allen notes, there was “more zeal for consolidating businesses than for expanding them or ini- tiating them.” With stock prices low, the cash-rich investors in corporate America had a chance to steal some things. Why invest in new oil wells when you can buy them on the stock market for less than half of what it would cost you to drill new ones? Why build new factories when you can buy a competitor for 20 cents on the dollar?
The aftermath of the crash is a good time to buy—with an important caveat, as Feldman points out: “Stock prices were so low that so long as a company did not go out of business, practically anything you might buy was certain to go up, if not sooner, then later.” (italics added)
We might call this “Feldman’s law of depression investing.”“
Nice analogy for weeding out the winners
“investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss. But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock. To truncate that upside because you are afraid to lose is like spending a lot of money on a car but never taking it out of the garage.”
June 3, 2025
very good book
November 7, 2020
There is not much of original idea here. This book is just a summary of other books. But how the author arrange the content makes this book a good read anyway.
March 27, 2022
Well-researched, short, and concise.
Not all 100-baggers can be predicted nor share the same characteristics, but most of them have some things in common.
The book highlights several critiria to look for, I will list the most important ones in my opinion. In summary, you are more likely to find a 100-bagger if you focus on the following criteria:
1-) Small-capitalization: it is easier for a 50 million company to grow to 5 billion than a 50 billion company growing to 5 trillion.
2-) High growth rates: you should look for companies growing revenue at double digits, and preferable to be profitable because it means that they are creating value.
3-) Valuation: pay a fair multiple to cash flows. Avoid companies priced to perfection, it is risky when all the future growth is priced-in.
4-) Management: look for owner-operators or management teams holding a substantial amount of stock of the same company; it means that their interest is aligned with yours.
5-) Patience: if a company fulfills all of the criteria listed above, then you should be patient, sit tight, and avoid the noise of financial news outlets. From time to time you should review your portfolio companies and analyze if they still fulfill your investment case, if not then consider trimming.
Hope this helps, I recommend the book.
Not all 100-baggers can be predicted nor share the same characteristics, but most of them have some things in common.
The book highlights several critiria to look for, I will list the most important ones in my opinion. In summary, you are more likely to find a 100-bagger if you focus on the following criteria:
1-) Small-capitalization: it is easier for a 50 million company to grow to 5 billion than a 50 billion company growing to 5 trillion.
2-) High growth rates: you should look for companies growing revenue at double digits, and preferable to be profitable because it means that they are creating value.
3-) Valuation: pay a fair multiple to cash flows. Avoid companies priced to perfection, it is risky when all the future growth is priced-in.
4-) Management: look for owner-operators or management teams holding a substantial amount of stock of the same company; it means that their interest is aligned with yours.
5-) Patience: if a company fulfills all of the criteria listed above, then you should be patient, sit tight, and avoid the noise of financial news outlets. From time to time you should review your portfolio companies and analyze if they still fulfill your investment case, if not then consider trimming.
Hope this helps, I recommend the book.
February 16, 2021
The book emphasizes on how to identify 100 baggers to invest. Some of the main factors includes size, quality of management, longevity, growth potential and understanding of the business.
Size - Inorder for a stock to become a 100 bagger it should be relatively small so that it can turn out to be big
Quality of management - We should look for good management which boosts shareholder value. It is ideal to look for management with more 'skin in the game' as they tend be more responsible in allocating capital.
Longevity - We should be patient and allow time to be our friend. More the time, better for compounding to do its miracles.
Growth potential - We should understand the growth potential of any business in a realistic manner. More the growth potential, the better. Also it is better if management can reinvest the profits in its underlying business and generate consistent growth.
Understanding of business - Never invest on things you do not understand. With the amount of disruptions happening in the technological era, More time should be dedicated to identify the moat of each business. The bigger the moat, the business is more likely to survive.
The last and most important takeaway of the book is patience. I personally liked the ideology of 'Never break your investment for an investment purpose'. Identify good stocks in a fair price and put them in a coffee can and forget about it. Let compounding do its miracle and one day you might get a 100 bagger.
Size - Inorder for a stock to become a 100 bagger it should be relatively small so that it can turn out to be big
Quality of management - We should look for good management which boosts shareholder value. It is ideal to look for management with more 'skin in the game' as they tend be more responsible in allocating capital.
Longevity - We should be patient and allow time to be our friend. More the time, better for compounding to do its miracles.
Growth potential - We should understand the growth potential of any business in a realistic manner. More the growth potential, the better. Also it is better if management can reinvest the profits in its underlying business and generate consistent growth.
Understanding of business - Never invest on things you do not understand. With the amount of disruptions happening in the technological era, More time should be dedicated to identify the moat of each business. The bigger the moat, the business is more likely to survive.
The last and most important takeaway of the book is patience. I personally liked the ideology of 'Never break your investment for an investment purpose'. Identify good stocks in a fair price and put them in a coffee can and forget about it. Let compounding do its miracle and one day you might get a 100 bagger.
April 4, 2022
Its an interesting take on (the overcrowded field of) value investing advice. Most people I've known who have made serious wealth in the market have done with one/few 100-baggers than a consistent hit on all stocks in their portfolio.
I guess the lesson is to go big when your research/gut tells you you have a good thing going.
I guess the lesson is to go big when your research/gut tells you you have a good thing going.
December 6, 2016
It was inspired by the classic 100-to-1 book that I bought for myself and some of my friends last year. Not bad, easy and fast read. Advocate for long-term holding and coffee-can method (don't sell at all).
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