100 Baggers

In 100 Baggers the author discusses the characteristics of companies, whose stock prices increased by a factor of 100 or more.

100 Baggers is an informative book. However, for me, it was mostly a repetition of things I already read somewhere else, like, for example, the importance of moats, or the power of well-timed share buybacks. I also didn't like the author's writing style.

My notes

Introducing 100-Baggers

"Every human problem is an investment opportunity if you can anticipate the solution [...]."

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.

The point [...] is to focus your attention on the power of compounding, to forget the day-to-day ripples of stock prices. After all, even if you catch part of a 100-bagger, the returns could fund a retirement.

Do not let the implausibility of making 100 to 1 on your stocks distract you. The main idea is to know how such returns have happened and what investors need to do to get them. Aiming a little closer to that goal is bound to improve your results.

Anybody Can Do This: True Stories

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The Coffee-Can Portfolio

The idea is simple: you find the best stocks you can and let them sit for 10 years. You incur practically no costs with such a portfolio. And it is certainly easy to manage. The biggest benefit, though, is a bit more subtle and meaningful. It works because it keeps your worst instincts from hurting you.

[...] 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.

The establishment doesn't want you to just sit on carefully chosen stocks. It wants to charge you fees. It wants to sell you stuff.

The biggest hurdle to making 100 times your money in a stock – or even just tripling it – may be the ability to stomach the ups and downs and hold on.

With a coffee can, you are allowing yourself to potentially lose everything on a single position. But the idea is that the returns on the overall coffee-can portfolio more than make up for any such disasters.

4 Studies of 100-Baggers

[...] the combination of rising earnings and a higher multiple on those earnings is really what drives explosive returns over the long-term.

There is no amount of security analysis that is going to tell you a stock can be a 100-bagger. It takes vision and imagination and a forward-looking view into what a business can achieve and how big it can get. [...] What security analysis can do is weed out the duds – those companies that don't create value even though they show great growth in earnings.

The 100-Baggers of the Last 50 Years

[...] you can't buy a utility stock or large mature company – such as McDonald's or Walmart or IBM – and expect anything close to a 100-bagger anytime soon (if ever).

[...] you must look forward to find 100-baggers. You have to train your mind to look for ideas that could be big, to think about the size of a company now versus what it could be.

Netting a 100-bagger takes vision and tenacity and, often, a conviction in an idea that may not yet be obvious in the financials.

The Key to 100-Baggers

[...] it's important to think about what a company can earn on the money it invests. 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.

Owner-Operators: Skin in the Game

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.

In the pursuit of 100-baggers, it helps to back talent. Think about finding people who might be the next Jobs, Walton or Icahn. Invest alongside talented people. Many of the best-performing stocks of the past 50 years had such a key figure for at least part of their history.

The Outsiders: The Best CEOs

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Secrets of an 18,000-Bagger

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Kelly's Heroes: Bet Big

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

Stock Buybacks: Accelerate 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.

Keep Competitors Out

It is great to have a moat, but true moats are rare and not so easy to identify all the time. Therefore, you should look for clear signs of moats in a business – if it's not clear, you probably are talking yourself into it – you may also want to find evidence of that moat in a firm's financial statements. Specifically, the higher the gross margin relative to the competition, the better.

Miscellaneous Mentation on 100-Baggers

People often do dumb things with their portfolio just because they're bored. They feel they have to do something.

In Case of the Next Great Depression

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100-Baggers Distilled: Essential Principles

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 100-baggers.

Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. If you're not willing to do it, then you're not going to net a 100-bagger or anything close to it.

A 100-bagger requires a high return on capital for a long time. A moat, by definition, is what allows a company to get that return. Therefore, it pays to spend some time thinking about what kind of moat a company has.

As a general rule, I suggest focusing on companies with market caps of less than $1 billion.

I would also remind you of something you should never forget: No one creates a stock so you can make money. Every stock is available to you only because somebody wanted to sell it. Thinking about that in the abstract, there seems to be no reason why you should expect to make money in a stock. But investing with owner-operators is a good reason to think you will. Because then you become a partner. You invest your money in the same securities the people who control the business own. What's good for them is good for you. [...] It's not perfect, but it's often better than investing with management that aren't owners.