- 100 baggers are stocks which turn a $1 investment into $100 over a certain period of time. The average stock in Mayer's research took 25 years to reach 100 bagger status, compounding at over 21% per year on average
- 100 bagger essentials - have to look for them; all about growth (sales, EPS, ROC, ROE, ROA); lower multiples preferred; twin engines of growth (lots of growth and low multiple); economic moats; smaller companies preferred; owner-operators preferred; coffee can approach; need a good filter to drown out the noise and keep conviction; luck helps; must be a reluctant seller
- Every human problem an investment opportunity if you can anticipate its solution
- Like Phelps said, "must buy right and hold on"
- Investors must distinguish between activity and results. Do not buy/sell simply out of boredom!
- Focus on the actual business - earnings, ROE, ROA and not price and never worry about market timing
- Look 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. There is also an admirable ethical streak to Mr. Phelps' style, as he emphasized investing in companies that do something good for mankind."
- Simply looking at numbers often misses the point - must truly understand how a company can create value in the years ahead
- Never take an investment action for a non investment reason (selling for tax reasons, want for action...)
- Coffee Can portfolio - take a portion of your money and select the best stocks you can and hold on for 10 years. Typically look at more established companies, with long runways that have the potential to compound for 10+ years
- Can serve as a crutch as it forces you to extend your time horizon and understand how the company will create value and be around for the next 10 years
- Must be able to stomach multiple 50%+ drops along the way
- Choose a leader, industry, country with a compelling story and be willing to face tremendous drops in value. As long as story remains intact, simply hold on
- Twin Engines of growth - PE expansion and exploding earnings
- Three legged stool - 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; business that can reinvest their free cash flow in a manner that continue to earn above average returns
- Importance of high ROC and ability to reinvest that cash to continue earning high ROC is the key to finding 100 baggers
- SQGLP - Small, quality business and management, growth in earnings, longevity of quality/growth, price is low
- Don't underestimate share buybacks - look at AutoZone
- Median sales for pre 100 bagger companies is about $170m and median market cap is about $500m. This gives a P/S of about 3 which is not cheap on a traditional basis
- Big ideas, potentially large markets, pricing power, brand, dominate a niche
- Takes vision, courage to buy and patience. can't always see the potential in the financials
- Prefer to pay healthy price for high growth and return than cheap price for mediocrity. Be willing to pay a fair price for a quality company/management
- Screen - high ROE (>15%) for 5+ years through high profit margins (and not leverage), sales growth of >10% for 5+ years
- Capital allocation, inside ownership vital (10-20% of company) huge
- Companies with high insider ownership are often discounted because they aren't liquid enough to be included in ETFs
- Highlights current "Outsider" CEOs - TDG, DHR/CFX, VRX, NVR, XOM, MKL, WTM, FFH:TSX, LUK, AZO, CSU:TSX
- Highlights some "second tier" Berkshires - Thomas Fortune Ryan, Van Sweringen brothers (Alleghany), Izaak Walton Killman, Bronfman brothers (Seagram, Brookfield Asset Management, Albert Frere (Groupe Bruxelles Lambert), AB Kinnevik, Bollore Group, Dundee Corp, First Pacific Corp.
- Great product and management alone is not enough for a moat
- Mental model - create industry map showing all the players that touch an industry
- Air lines example - Air Lease, Boeing, B/E Aeorspace (lessors, manufacturers, suppliers)
- High gross margins single most important factor for long run performance (scale and track record useful too)
- Stability a good indicator of an attractive company/industry (i.e., telecom, beverages)
- Must clearly see how and where the company adds value
- Good turnaround potentials typically have high gross profit margins and low operating profit margins (gpm - sg&a = opm) as cost reductions can be implemented to improve margins
- Don't chase returns
- Boredom arbitrage - Take advantage of other people's boredom
- Avoid scams - pay up for quality management
- Read conference call transcripts (several quarters worth to see if there are any disappearing initiatives, changes in language)
- Questions evaded, overly optimistic
- Keep management "at a distance"
- Read conference call transcripts (several quarters worth to see if there are any disappearing initiatives, changes in language)
- Extreme predictions rarely right but its those that make big money
- Sosnoff's Law - best ideas often the simplest
- Don't get anchored or fall in love with any idea
- Be suspicious of abstractions
- Don't be afraid to hold cash until you find the juicy opportunity
- Want PEG of about 1
What I got out of it
- Really good read - buy right, hold on, coffee can approach, selling should almost never happen and you should think of it as a painful mistake (even if you make a profit)
