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12 key lessons from the 100 Baggers: Stocks That Return 100-to-1 and How to Find Them

100 baggers

100 baggers are stocks that return 1 crore for every 1 lakh invested.

100 baggers by Christopher Mayer book are solely about 100 baggers.

And he shows how you can find them.

Every chapter of the book contains one specific topic in detail.

Expect the last two.

This is the best book for the folks who want their money to give 100 times in return.

Let us look at the 12 best lessons I learned from 100 Baggers: Stocks That Return 100-to-1 and How to Find Them by Christopher Mayer.

1. You need time and growth

The one thing you must know is that 100 baggers are the product of time and growth.

The below table shows you how long and how much stock must compound to become a 100 bagger.

Return Years to 100-bagger
14% 35 Years
16.60% 30 Years
20% 25 Years
26% 20 Years
36% 15 Years
50% 10 Years

If you want 100 baggers in just 10 years, you need a remarkable compound return of 50 percent.

The last year of your investment is the most essential for 100 baggers.

Suppose you buy a stock that returns about 20% annually for 25 years, you will get your 100 baggers.

But if you sell your investment in year 20, you will get only about 40 baggers.

The last five years will more than double your overall return.

Therefore, you must wait.

You need growth and lots of it.

Focus more on sales or earnings per share (EPS) growth.

You want good growth, not bad growth.

Example of a good growth:

  • Increasing sales
  • Scaling business
  • New product launched
  • Good acquisitions

Examples of bad growth

  • Cutting cost and
  • Unnecessary debt

Don’t just look at growth, find out why it is growing.

And see whether it is bad or good.

2. Coffee can investing

The coffee can is an investing strategy.

In simple words, you need to find the best stocks and let them sit for 10 years.

You should only put stock that you know is a good 10-year bet.

Avoid stocks you do not think are a good 10-year bet.

You should focus on business performance than quarterly or annual earnings.

It will help you hold stocks for 10 years or more period.

3. Prefer smaller companies

You need to look out for smaller companies.

It can be a micro-cap also.

Smaller companies can grow 10 times or 30 times and still be small.

But stock like TATA, a market cap of 1.45 lakh crore, can’t grow 10 times or 20 times and not even possible 100 baggers.

It’s mathematically impossible.

You need small companies for investing but not like start-ups unless you are an angel investor.

Stick with established businesses with a long runway of growth ahead and the ability to keep compounding money at a high rate.

4. Twin engines

The growth and a low multiple are the essences of 100 baggers.

They are twin engines.

You should look at companies with a very high return on capital.

If the company earns 6% over 40 years, and you hold it for 40 years, you’ll don’t make it big.

Even if you buy at a huge discount.

Conversely, if a company earns 18 to 20% over 20 years, even if you pay an expensive price, you’ll end up with a good result.

chart of twin engines

This is the must requirement of 100 baggers stocks.

Also, a P/E ratio matters.

The lower it is, the better.

Just remember the higher the P/E ratio, the higher the earnings it needs to be.

You can use the PEG ratio.

The PEG ratio is the (P/E ratio) / (annual EPS growth rate).

For example, if earnings grow 25%, then a P/E of 25 is good.

Use the PEG formula and you will come up with 1.

Anything above 1 is too expensive.

5. Owner-operators

Owner-operators simply mean—investing with people who own a lot of the stock you’re buying.

The bigger the stake in the company of promoters, the bigger the value you’ll get.

The bigger stake is the sign of value.

Always stick with the owner-operator.

People with their wealth at risk make a better decisions as a group than those who are hired.

6. Stock buybacks

Stock buybacks can accelerate your compounding returns when done right.

Stock buybacks as its name suggest companies use their cash to buy their shares in the stock market.

There are two reasons companies buyback their stocks:

  1. Low stock price relative to their intrinsic value
  2. The company has available funds

From Christopher Mayer’s study of 100 baggers, more than a few 100 baggers bought back their shares when the price of the share is low relative to the intrinsic value.

7. Economic moat

An economic moat is a competitive advantage of a business over its competitors.

For 100 baggers, companies need to do very well over a long period and still must be profitable.

Moat will help the company do that.

It will protect competitors from reaping its profits

There are 5 types of the economic moat (contain in 100 baggers book):

  • Strong brand
  • Cost a lot to switch
  • Network effects
  • Low cost
  • The biggest

it’s one of the main parameters I use while analyzing a company.

And I highly suggest you learn more about it.

Suggested reading: Everything You Need To Know About Economic Moat In 2022

 

8. What If you fail?

Some companies can look like 100 baggers but didn’t make it for whatever reasons.

First, there can be no failures.

If your stock compound 20 percent annually for 25 years, you will have your 100 baggers.

Second, forget about failures and solely focus on finding 100 baggers.

That’s what Thomas William Phelps did the author of 100 to 1 in the Stock Market.

9. Stock that won’t come back

Not all stocks are likely to come back.

3 types of stock won’t come back:

  1. Overpriced stocks: stock value is greater than intrinsic value.

if you paid the stupid price for your stocks, you’ll most likely lose your money.

  1. Permanent impairment: When a company makes a significant loss.

It goes out of business.

Rather than focusing on their main business the company is doing something else.

The business is no longer what it once was.

  1. Massive dilution: old shareholders can’t protect themselves from dilution.

It happens when a company issues a new bunch of shares to pay back debt or recover losses.

Think of it as adding water to your beer and sharing it.

While on stock buybacks you accelerate your return, dilution reduces your ROE and dividends per share.

10. Concentrated portfolio

The idea of a concentrated portfolio is simple: Bet big on your best ideas.

Don’t try to invest in 80 or 100 things, just try to find the best ideas and bet big on a few things.

When looking at 100 baggers don’t try to shoot at anything small.

Your only focus should be on finding 100 baggers.

11. Be a reluctant seller

“If the job has been correctly done when a common stock is purchased, the time to sell it is—seldom.” – Phil Fisher

When should you sell?

  • When you made a mistake

What you thought of a company before is not better about the company anymore.

  • The stock no anymore meets your criteria.
  • You want to switch to something better

You should be careful and only switch if somewhere is a better investment than before.

If you are looking for 100 baggers, you must learn to sit.

Buy right and sit tight.

12. Miscellaneous

The 100 baggers book has a ‘miscellaneous mentation’ chapter which includes a variety of investing ideas that don’t fit anywhere.

Here is a quick overview of all of that.

  • Don’t chase returns: Don’t compare your portfolio with Sensex, Nifty, or another index. Chasing returns is for armatures. Just buy right and hold on.
  • Don’t get bored: People often do the dumb thing when they are bored. They sell stocks if their stock is not moving. They see other stocks rise and buy. They chose whatever is moving and get into trouble.
  • Avoid scams
  • Management: Read conference call transcripts than listen to them. it is better to keep management at a distance.
  • The Board of directors is supposed to represent shareholders, but they don’t. Just don’t rely on them.
  • Lawyers are paid by their clients than is a company. So don’t be fooled by a fancy lawyer.
  • Auditors are also like Lawyers. They represent the interests of their clients. Companies pay them. This reminded me of the old saying “whose bread I eat, his song I sing.”
  • Investment banks: Don’t look out for research put by investment banks or brokerage firms as advice.
  • Market research firms: Most companies hire these firms and often give them the research to show what they want to the investors. Don’t trust them. Instead, look at more objective sources of information. Such as sales data and trends.
  • 3 Precautions to take:
  1. Stay away from weird things. If you can’t understand what businesses are doing stay away from them.
  2. Avoid hot sectors.
  3. Don’t invest in companies that have loss promoter holdings.
  • Ignore forecasters: throughout your investing life, bad or good things will happen. You don’t know when it’s coming. Instead of playing the guessing game, focus o the opportunities in front of you.

Conclusion on 100 baggers

These are the lessons from the 100 Baggers by Christopher Mayer.

You can also think of it as a book summary.

Make sure you use these lessons to find out 100 baggers stocks.

And to learn lessons even more depth than this read 100 Baggers: Stocks That Return 100-to-1 and How to Find Them.

Have you read the book yet?

What are your favorite lessons?

Let me know by leaving a comment below right now.

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