100 Baggers - Christopher W Mayer

Last updated Nov 17, 2024

• Author: Christopher W Mayer
• Full Title: 100 Baggers
• Category: #books

100 to 1 in the Stock Market by Thomas Phelps. (Location 34)

investors need to distinguish between activity and results. (Location 63)

What investors should do is focus on the business, not on market prices. (Location 69)

I would have been much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $ 10,000 into a million dollars.” (Location 80)

“He who lives by the sword shall perish by the sword,” (Location 84)

looking for new methods, new materials and new products— things that improve life, that solve problems and allow us to do things better, faster and cheaper. (Location 95)

Relying only on published growth trends, profit margins and price-earnings ratios is not as important as understanding how a company could create value in the years ahead. (Location 99)

“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,” (Location 108)

Don’t sell just because the price moved up or down, or because you need to realize a capital gain to offset a loss. You should sell rarely, and only when it is clear you made an error. (Location 109)

In the stock market, the evidence suggests, one who buys right must stand still in order to run fast.” (Location 126)

Benjamin Graham and David Dodd’s celebrated book called Security Analysis, (Location 152)

Studying some of the great successes and the principles behind 100-baggers will help in the effort to find winning stocks today— not (Location 167)

There is hindsight bias, in that things can look obvious now. And there is survivorship bias, in that other companies may have looked similar at one point but failed to deliver a hundredfold gain. (Location 175)

The Outsiders, by William Thorndike, (Location 191)

study markets and 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. (Location 213)

the coffee-can portfolio is designed to protect you against yourself— the obsession with checking stock prices, the frenetic buying and selling, the hand-wringing over the economy and bad news. It forces you to extend your time horizon. You don’t put anything in your coffee can you don’t think is a good 10-year bet. (Location 289)

Few things are harder to put up with than the annoyance of a good example. —Mark Twain, (Location 304)

The founders of the Trust bought equal shares of 30 leading companies in 1935 and decreed they could never be sold. The only exception was companies that went bankrupt, merged or spun off. (Location 338)

Lowenstein told MIT’s story well in his book The Investor’s Dilemma, (Location 352)

Sense & Nonsense in Corporate Finance and What’s Wrong with Wall Street.) (Location 356)

The typical fund these days charges a lot, trades way too much and trails the market badly. (Location 370)

Netflix, which has been a 60-bagger since 2002, lost 25 percent of its value in a single day— four times! On its worst day, it fell 41 percent. And there was a four-month stretch where it dropped 80 percent. (Location 436)

You don’t have to put all of your money in a coffee-can portfolio. You just take a portion you know you won’t need for 10 years. (Location 443)

Wealth, War and Wisdom, (Location 470)

The essence of the coffee-can idea is really that it’s a way to protect you against yourself— from the emotions and volatility that make you buy or sell at the wrong times. (Location 503)

you must pick a compelling story (or leader or country or… ) and you must use money you can afford to lose because you must be willing to risk it all. All of it. (Location 554)

Some of the most attractive opportunities occur in beaten-down, forgotten stocks, which perhaps after years of losses are returning to profitability. (Location 578)

growth in earnings and a higher multiple on those earnings— the “twin engines” of 100-baggers. (Location 619)

Small companies can grow to 10 times or 20 times and still be small. They can even become 100-baggers. (Location 639)

the single most important factor “is GROWTH in all its dimensions— sales, margin and valuation.” (Location 660)

“Our analysis of the 100x stocks suggests that their essence lies in the alchemy of five elements forming the acronym SQGLP,” they wrote: • 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. (Location 665)

“In the ultimate analysis, it is the management alone which is the 100x alchemist,” they concluded. “And it is to those who have mastered the art of evaluating the alchemist that the stock market rewards with gold.” (Location 672)

Investing with top entrepreneurs and owner-operators gives you a big edge. And when you mix that talent with the other elements, you are on your way to big returns, (Location 675)

To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” According to Phelps, “patience is the rarest of the three.” (Location 685)

A low entry price relative to the company’s long-term profit potential is critical. (Location 695)

It takes vision and imagination and a forward-looking view into what a business can achieve and how big it can get. Investing is a reductionist art, and he who can boil things down to the essential wins. (Location 746)

holding on is the most tax-efficient way to invest since you don’t pay taxes on any gains— instead allowing gains to compound tax-free. (Location 768)

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. (Location 780)

the median sales figure for the 365 names at the start was about $ 170 million and the median market cap was about $ 500 million. (Location 801)

Despite occasional exceptions, you do want to focus on companies that have national or international markets. (Location 812)

When they decided to roll out a new energy-drink line, Lost Energy, they again experimented. Instead of going through their regular distribution channel, (Location 878)

“They also found that using words like ‘sugar free,’ or ‘diet’ were perceived to be feminine, along with light/ white/ silver colored cans; (Location 881)

ROE is Return on Equity. Its net income divided by shareholder equity (Location 903)

“It is easy to see the business quality when studying the above table,” Yoda writes. “So why didn’t everyone get rich? Very few people followed the story early on.” (Location 910)

“He understands the value of a business is the sum of its future free cash flows, discounted back to the present. And he understands capital allocation and the importance of return on invested capital.” (Location 951)

In 2014, Amazon spent $ 9.2 billion on R& D. Adding that back to operating income, Amazon generated adjusted operating income of $ 9.4 billion in 2014. That’s an operating margin of 10.6%. (Location 988)

EA treated its game developers like rock stars. EA gave its developers personal credit for the creation of a game. This “was allegedly done through not just financial incentives but also PR type activities that celebrated them along with their work,” (Location 1091)

As Darwin said, “It is not the strongest or the most intelligent who will survive but those who can best manage change.” (Location 1203)

Gillette researchers had actually patented the stainless steel coating process before Wilkinson could obtain a patent. So Gillette received a royalty for each stainless blade sold by Wilkinson. (Location 1220)

“Over time,” Donville wrote, “the return of a stock and its ROE tend to coincide quite nicely.” (Location 1295)

once you find a Home Capital, the goal is “to hold this stock or basket of stocks for as long as the company can achieve said returns. (Location 1304)

Many 100-baggers enjoyed high ROEs, 15 percent or better in most years. (Location 1329)

Then Buffett meets Charlie Munger and he takes on a new definition of value that focuses on stocks that are cheap in relation to the net present value of future cash flows. (Location 1335)

“I’m not saying they can’t come from somewhere else. Other companies will blast away and be 100-baggers, but you can’t see them coming in advance. All you can do is look back in awe (Location 1344)

“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,” (Location 1356)

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.” (Location 1366)

Jason’s fund allows him to put up to 20 percent in any one stock, though he has a self-imposed limit of 12.5 percent. (Location 1392)

It’s important to have a company that can reinvest its profits at a high rate (20 percent or better). ROE is a good starting point and decent proxy. I wouldn’t be a slave to it or any number, but the concept is important. (Location 1403)

My experience as a money manager suggests that entrepreneurial instinct equates with sizable equity ownership… If management and the board have no meaningful stake in the company— at least 10 to 20% of the stock— throw away the proxy and look elsewhere. —Martin Sosnoff, Silent Investor, Silent Loser (Location 1412)

The people who make these ETFs like to put big, liquid stocks in them. These are easy to buy and sell. The problem is that companies controlled by insiders— thanks to their large stakes— tend not be as liquid as their peers. Thus, the ETFs bypass such companies or give them a low weighting. (Location 1429)

“We’re finding these owner-operators… are being priced well below the marketplace, yet… they have returns on capital far in excess of the S& P 500 index or any other index you might be looking at.” (Location 1432)

“Owner-operators, over an extended period of time,” Doyle said, “tend to outpace the broad stock market by a wide margin.” (Location 1447)

the S& P 500 uses a float-adjusted market cap to determine the weight in the index— meaning, the S& P counts only what is not in the hands of insiders. (Location 1539)

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, by William Thorndike, (Location 1598)

Capital allocation equals investment. And CEOs have five basic options, says Thorndike: invest in existing operations, acquire other businesses, pay dividends, pay down debt or buy back stock. (Location 1617)

three ways to raise money: issue stock, issue debt or tap the cash flow of the business. (Location 1620)

each understood that • capital allocation is the CEO’s most important job; • value per share is what counts, not overall size or growth; • cash flow, not earnings, determines value; • decentralized organizations release entrepreneurial energies; • independent thinking is essential to long-term success; • sometimes the best opportunity is holding your own stock; and • patience is a virtue with acquisitions, as is occasional boldness. (Location 1629)

Murphy’s formula was simplicity itself: Focus on cash flow. Use leverage to acquire more properties. Improve operations. Pay down debt. And repeat. (Location 1654)

If people weren’t so often wrong, we wouldn’t be so rich. —Charlie Munger at the 2015 Berkshire Hathaway annual meeting (Location 1757)

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. (Location 1773)

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. (Location 1803)

The leaders of holding companies are, essentially, money managers with structural advantages in how they invest. They have permanent capital, unlike, say, a mutual fund manager who must deal with constant inflows and outflows. Holding companies also build businesses, as opposed to just buying and selling stocks. (Location 1837)

having-libraries-named-after-you kind of wealth”— comes from owning and operating and building businesses and having a long-term commitment. (Location 1862)

Because of multiple holdings, these companies can be complex. They don’t fit in easy Wall Street boxes and largely go unfollowed. This creates opportunities sometimes to buy them cheap. (Location 1867)

focus your capital on stocks with the potential to return 100x. You don’t want to own a zoo of stocks and ensure a mediocre result. (Location 1891)

William Poundstone’s Fortune’s Formula. (Location 1897)

Poundstone’s book (Location 1926)

The typical mutual fund holds about 100 stocks. None matters very much (or for very long). And most funds are poor mimics of the market. (Location 1945)

portfolio: Keep the list of names relatively short. And focus on the best ideas. When you hit that 100-bagger, you want it to matter. (Location 1948)

A buyback is when a company buys back its own stock. As a company buys back shares, its future earnings, dividends and assets concentrate in the hands of an ever-shrinking shareholder base. (Location 1979)

Since 1998, the 500 largest US companies have bought back about one-quarter of their shares in dollar value, yet the actual shares outstanding grew. This is because they hand out the shares in lavish incentive packages to greedy executives. (Location 1983)

the auction nature of security markets often allows finely-run companies the opportunity to purchase portions of their own businesses at a price under 50% of that needed to acquire the same earning power through the negotiated acquisition of another enterprise. (Location 2016)

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. (Location 2022)

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. —Warren Buffett (Location 2026)

The Little Book That Builds Wealth, (Location 2039)

Companies that are more durable are more valuable. And moats make companies durable by keeping competitors out. (Location 2043)

The more people who use these products, the more they enjoy network effects. Think of Twitter, Facebook and YouTube. (Location 2057)

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. (Location 2070)

“when management with the reputation for brilliance meets a company with a reputation for bad economics, it’s the reputation of the company that remains intact.” (Location 2094)

Pabrai’s book The Dhandho Investor, (Location 2097)

mean reversion, which is like a strong current in markets that pulls everything toward average. (Location 2136)

Mean reversion reflects the competitive nature of markets, the fact that people are always reacting and anticipating and working to make more money. (Location 2138)

“high gross margins are the most important single factor of long run performance. The resilience of gross margins pegs companies to a level of performance. Scale and track record also stand out as useful indicators.” (Location 2156)

Gross margins persist, to use the statistical lingo. Berry thinks gross margin is a good indication of the price people are willing to pay relative to the input costs required to provide the good. (Location 2160)

the difference between a gross profit margin and an operating profit margin is expenses often dubbed SG& A— for selling, general and administrative— overhead, in other words. (Location 2167)

if gross margins are sticky and persistent, then a good turnaround candidate would be one with a high gross profit margin and a low operating margin. The latter is easier to fix than the former. (Location 2170)

don’t try to chase returns, because doing so will cost you a lot of money over time. (Location 2220)

The problem with the 24/ 7 media culture we live in is that everybody has to have something to say almost all the time. And yet most of the time there really isn’t anything worth saying. (Location 2239)

Modern Security Analysis by Whitman and Fernando Diz. (Location 2249)

People are dying of boredom. —Raoul Vaneigem, The Revolution of Everyday Life (Location 2266)

In the financial markets, people often wind up sabotaging their own portfolios out of sheer boredom. (Location 2291)

all you have to do is think out a year and you can pick up stocks that are cheap today because others can’t look beyond the current quarter or two or three. (Location 2321)

Wanger, he wrote an investment book called A Zebra in Lion Country, published in 1997. (Location 2329)

“Usually the market pays what you might call an entertainment tax, a premium, for stocks with an exciting story. So boring stocks sell at a discount. Buy enough of them and you can cover your losses in high tech.” (Location 2331)

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. And much this way it was with me. I said nothing and tried to think nothing. —Herman Melville, Moby Dick (Location 2340)

the more success and awards and public adulation a CEO earns, the less likely they are to own up to mistakes. (Location 2364)

Reading conference-call transcripts is better than listening to them. • Read several quarters at a time to look for disappearing initiatives, changes in language. • Are questions ever evaded? Which ones? (Location 2373)

Board members often view their directorship as a perk, not a responsibility. Insurance and other protections insulate boards from liability. (Location 2382)

don’t look to research put out by investment banks or brokerage houses as a source of advice on where you should invest. (Location 2408)

Block had a good line: “China is to stock fraud what Silicon Valley is to technology.” He believes investors are getting complacent again about fraud risks in China. (Location 2416)

an investor going overseas was often simply swapping risks he could see for risks he couldn’t see. Investing is hard. Investing overseas, in a foreign market, is harder. (Location 2419)

you don’t understand how they make money— see Sino-Forest— run! (Location 2433)

“In Africa, where there are no antelope, there are no lions.” (Location 2442)

David Dreman writes about this in his book Contrarian Investment Strategies. (Location 2454)

As a species, we are by nature optimistic— at least most of us are. (Location 2460)

Benjamin Graham: Building a Profession. (Location 2466)

Attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. (Location 2479)

the extremes are where you make (or lose) a lot of money. Consensus forecasts aren’t worth much, whether right or not. (Location 2488)

Humble on Wall Street, published in 1975 (Location 2527)

the best ideas are often the simplest. (Location 2531)

published in 1845. English speakers know it as The Ego and His Own. (Location 2536)

Stirner contended that people do not have ideas. Rather, their ideas have them. These “fixed ideas” then rule over their thinking. (Location 2538)

a thought was your own only when you “have no misgiving about bringing it in danger of death at every moment.” (Location 2540)

“Investment,” author John Train once wrote, “is the craft of the specific.” (Location 2555)

my best ideas often come from people. Hidden stories exist. And there is a person, somewhere, who knows that story. Make an effort to find those people and their stories. (Location 2568)

Mayan mythology. A great flood destroyed the world. So, the Mayans moved to higher ground in the woods. Then fire destroyed the world. So they moved away from the woods and built houses of stone. Then came an earthquake…. (Location 2594)

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. (Location 2662)

monetary depreciation favors the asset light. (Location 2667)

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. (Location 2670)

“General markets tend to come back strongly in periods subsequent to price crashes! (Location 2707)

“A falling stock market seems to clarify and stimulate thought. When it is rising, nobody cares to know why or how, but when it falls everyone is very eager to know all about it.” —Albert Jay Nock, Informed Common Sense: The Journals of Albert Jay Nock (Location 2727)

“I am clear,” the new Keynes wrote in a memorandum, “that 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.” (Location 2759)

investors need to take losses with “as much equanimity and patience” as possible. Investors must accept that stock prices can swing wide of underlying values for extended stretches of time. (Location 2796)

Keynes offered the best summing up of his own philosophy: 1. careful selection of a few investments (or a few types of investment) 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. 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. (Location 2818)

The White Sharks of Wall Street, (Location 2846)

He found companies trading for less than the value of the cash and securities they owned. So he bought them, liquidated them and then took the cash and did it again… (Location 2848)

don’t be afraid to hold onto cash until you find those special 100-bagger opportunities. (Location 2852)

Ups and Downs of a Wall Street Trader during the Depth of the Great Depression of the 1930s. (Location 2857)

in investing, you should never cry over spilt milk,” he writes. “Only the future is of importance.” (Location 2898)

“My ill fortune no less than my good proved to me that… good comes from evil as evil comes from good.” (Location 2905)

it’s good to have cash and not be afraid to buy when things look bad. (Location 2908)

Graham’s big mistake was using too much debt. (Location 2932)

letters to partners from 1993 to 2013, titled The Power of Compounding. (Location 2950)

looks for • businesses that have historically compounded value per share at very high rates; • highly skilled managers who have a history of treating shareholders as though they are partners; and • businesses that can reinvest their free cash flow in a manner that continues to earn above-average returns. (Location 2968)

the older he gets, the more he whittles things down to the essentials. (Location 2975)

our thinking has focused more and more on the issue of reinvestment as the single most critical ingredient in a successful investment idea, once you have already identified an outstanding business.” (Location 2976)

book about investing titled A Zebra in Lion Country.) (Location 2999)

These stocks just overpowered all those big-picture concerns. (Location 3007)

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. Everything else is ancillary to this principle. (Location 3010)

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. (Location 3022)

Earnings are the reported numbers, whatever they are. Earnings power, however, reflects the ability of the stock to earn above-average rates of return on capital at above-average growth rates. (Location 3034)

Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. (Location 3076)

It is rare to get a truly great business at dirt-cheap prices. If you spend your time trolling stocks with price– earnings ratios of five or trading at deep discounts to book value or the like, you’re hunting in the wrong fields— at least as far as 100-baggers go. (Location 3088)

“The PEG ratio is simply the (P/ E Ratio)/( Annual EPS Growth Rate). If earnings grow 20%, for example, then a P/ E of 20 is justified. Anything too far above 1x could be too expensive.” (Location 3129)

When you get lots of growth and a low multiple you get the twin engine of 100-baggers. (Location 3139)

When you buy a cow to milk, don’t plan to race her against your neighbor’s horse.” (Location 3159)

A company that earns 15 percent on its capital could raise it to, say, 20 percent by taking on some debt. But this raises the risk of the stock too. (Location 3164)

find some way to leave your stocks alone. Let them ripen on the vines. Don’t pick them too early. (Location 3209)

don’t fret so much with guesses as to where the stock market might go. Keep looking for great ideas. (Location 3255)

Luck: The Brilliant Randomness of Everyday Life: (Location 3266)

Common Stocks and Uncommon Profits, Phil Fisher (Location 3273)

simple investing concepts: keeping fees low, investing in quality companies, reinvesting dividends and— most importantly for our purposes— the power of just holding on. (Location 3306)

Phelps’s selling advice is one you can sum up in one sentence too: “Never if you can help it take an investment action for a non-investment reason.” (Location 3321)

in a bull market, a mistake may well mean taking profits. It’s a mistake because it represents a lost opportunity to have made bigger profits. And you pay a capital gains tax as a penalty.) (Location 3328)

what is the point of going through all the research required to come up with an idea if you’re going to let your neighbor dictate your sell price? (Location 3341)

“Let us fall back on the principle that when any rule or formula become a substitute for thought rather than an aid to thinking, it is dangerous and should be discarded.” (Location 3353)

if you’ve done the job right and bought a stock only after careful study, then you should be a reluctant seller. (Location 3358)