Exploring how to find 100 Baggers is the premise of Christopher Mayer’s Book 100 Baggers: Stocks that Return 100 to 1 and How To Find Them (2015). Monster Beverage reached 100x in only 9.5 years!
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100 Bagger means that you turn $10,000 invested in a public company into $1,000,000! Chris looked at 365 companies that 100x during the period of 1962-2014. Many investors are happy with just a 10x company, but if we can land a 100 Bagger that would be beyond amazing.
Many of the companies that 100x’d took a long time, so expect to hold one for 20-25 years before it might make it. Chris also talks about how you would think Buy Right and Hold would appeal to more people, but many people also like to gamble in a casino-like environment, he acknowledges.
The author encourages us to think about investing in our most prized companies that we figuratively store in a “Coffee Can Portfolio” as a reference to the wild west when they kept their valuables in coffee cans.
As long as the theme or story of the company hasn’t changed, we should keep it. When we sell securities, it’s like admitting an error or a mistake that we might’ve had the wrong judgment about the company.
Thomas Phelps, the original 100 Baggers author, said in order to make money in stocks we need to have the “vision to see them, courage to buy them, and patience to hold them.”
No amount of security analysis can tell us which companies will 100x, it requires some vision and imagination.
To reach 100 Bagger status, a company needs the twin engines of multiple growth (PE ratio) and size growth (Earnings Per Share) every year.
Monster Beverage and Amazon are among the case examples and I explain the rationale of how they became 100 Baggers.
At the minimum, we also need to see ROE/ROIC increasing at 15-20% per year and revenues increasing at 10% per year if something is on track to 100x.
We want to see the business recycling its profits back into growing the business, because sometimes giving them out as dividends can be an expensive luxury where it could be a drag on growth and could be preventing companies from realizing 100 Bagger status.
It’s best to be a CEO or owner operator of a permanent cash-flow generating business and/or holding company as they are in the best position as long as they continue making good capital allocation decisions. This is better than being in the position of a fund manager who has to deal with outflows and inflows.
Berkshire Hathaway became a 18,000 Bagger from 1965-2015, turning $10K into $180 million over 50 years! The secret to Warren Buffett’s success is using insurance premium float cash as leverage to generate outside returns.
The irony of a 1987 Buffett quote about investing in a few meaningful things so he can’t be involved in 50-75 things is that now the most recent Berkshire 13-F showed 46 stocks and I added 62 subsidiaries on his website, that’s at least 108 companies even if the official public company tally might be less than 50. So he ended up with a zoo anyway!
When done right, stock buybacks are a modern tontine where surviving shareholders the more the number of outstanding shares shrinks. There’s also some discussion about the Kelly Formula (F = Edge / Odds) about how much of one’s bankroll to “bet” on any investment (or I suppose gamble if you will).
We shouldn’t chase returns and sit still. And like the story of Jack and the Beanstalk, if we plant our capital wisely, it’ll grow to giant lengths.
Chris discusses how famous economist John Maynard Keynes wasn’t just someone a lot of people quote, but he was an excellent fund manager for the King’s College Chest Fund in Cambridge, England. During 1927-1946 featuring the Great Depression (GD) and WWII, or around the birth years of the Silent Generation, the Fund impressively returned 12% per year!
Chuck Akre is also featured in the book with his three legged stool investing approach that involves compounding value at high rates, highly skilled managers, and reinvesting free cash flows at above average returns.
The book says investing is such a mental game and we shouldn’t be afraid to hold cash in waiting for the right 100 Bagger opportunities. After all, cash was king during the GD!
If we’ve carefully studied the companies we bought in the right way, we should be reluctant sellers, and we should never sell for non-investment reasons.
Some noteworthy 100 Baggers include companies like Apple, Home Depot, Nike, Adobe, Microsoft, Starbucks, Monster Bev, and Amazon.
Chris wrote there’s no magic formula for producing 100 Baggers, so let’s buy right and HODL tight (to borrow from Reddit speak).
I look forward to making more investor friends! Add me on Instagram: michellemarki! 🙂