100 Baggers
10 Lessons to help you find stocks that return 100X your investment
// THREAD
10 Lessons to help you find stocks that return 100X your investment
// THREAD
1. A company needs an extended period of high growth to become a 100-bagger
To achieve this return, a business needs to sustain continued revenue, margin, and EPS growth
On average, companies in the survey conducted by Mayer took 26 years to become 100-baggers
To achieve this return, a business needs to sustain continued revenue, margin, and EPS growth
On average, companies in the survey conducted by Mayer took 26 years to become 100-baggers
2. As well as EPS, P/E ratio expansion is the key to a 100-bagger
But what do you do when a stock’s P/E grows extremely high?
Ask yourself: is your thesis on the fundamentals still valid, and are you still able to sleep soundly at night when the stock becomes high overvalued?
But what do you do when a stock’s P/E grows extremely high?
Ask yourself: is your thesis on the fundamentals still valid, and are you still able to sleep soundly at night when the stock becomes high overvalued?
3. A new, small company can 20 x and still go on to 100 x from there
Basically, it’s easier for small companies to become 100-baggers than larger ones
Mayer states: the median revenue for the 365 100-baggers at the start of the study was ~$170M
With a median mkt. cap of ~$500M
Basically, it’s easier for small companies to become 100-baggers than larger ones
Mayer states: the median revenue for the 365 100-baggers at the start of the study was ~$170M
With a median mkt. cap of ~$500M
4. Sometimes, we need to look beyond earnings
Example: Amazon has spent a huge amount on R&D expenses - $22.6 billion in 2017 - the highest in the US.
This reduced its reported earnings
It could have cashed out on its earnings, yet it chooses to reinvest for the future...
Example: Amazon has spent a huge amount on R&D expenses - $22.6 billion in 2017 - the highest in the US.
This reduced its reported earnings
It could have cashed out on its earnings, yet it chooses to reinvest for the future...
This has resulted in Amazon $AMZN becoming one of the largest companies in the world
Earning its shareholder's multi-fold returns since its listing
Earning its shareholder's multi-fold returns since its listing
5. Buy right and hold on
Mayer states: ‘one who buys right must stand still in order to run fast’
He shows the idea using a coffee-can portfolio – buying the best stocks & holding onto them for 10 years
This approach is brilliant...
Mayer states: ‘one who buys right must stand still in order to run fast’
He shows the idea using a coffee-can portfolio – buying the best stocks & holding onto them for 10 years
This approach is brilliant...
Not only does it insulate an investor from market noise
It also protects them from emotions & volatility that could make them trade at the wrong times
Tip: bet big on your best ideas & avoid holding too many stocks. An ideal is 10-20 stocks - sufficient to diversify your risk
It also protects them from emotions & volatility that could make them trade at the wrong times
Tip: bet big on your best ideas & avoid holding too many stocks. An ideal is 10-20 stocks - sufficient to diversify your risk
6. High ROE is necessary to compound a potential 100-baggers capital
If a company distributes a dividend, it has less capital to reinvest for future growth
Due to this, high-growth companies tend to not pay a dividend and look to reinvest their earnings for growth
If a company distributes a dividend, it has less capital to reinvest for future growth
Due to this, high-growth companies tend to not pay a dividend and look to reinvest their earnings for growth
7. Owner-operator companies tend to outperform the wider market over the long-term
A 2012 study showed companies managed by the world’s billionaires outpaced the index by 7%/Yr.
When these guys have sizable ownership, they're likely to be aligned with shareholders’ interests
A 2012 study showed companies managed by the world’s billionaires outpaced the index by 7%/Yr.
When these guys have sizable ownership, they're likely to be aligned with shareholders’ interests
8. Gross profit margin serves as a reliable measure of the perceived value of a product/service by the customer
From Matthew Berry: ‘If you can’t see how or where a company adds value for customers in its business model, then you can pretty sure it won’t be a 100-bagger.’
Cont
From Matthew Berry: ‘If you can’t see how or where a company adds value for customers in its business model, then you can pretty sure it won’t be a 100-bagger.’
Cont
This study discovered that gross profit margins were surprisingly resilient
Companies with high gross profit margins tended to keep their margins high, and companies with low gross profit margins remained low
High gross margins = a resilient advantage over competitors
Companies with high gross profit margins tended to keep their margins high, and companies with low gross profit margins remained low
High gross margins = a resilient advantage over competitors
9. The 100-bagger population favours no particular industry
They include retailers, beverage markets, food processors, and technology firms
However, he suggests sticking with more established companies in stable industries with long runways of growth...
They include retailers, beverage markets, food processors, and technology firms
However, he suggests sticking with more established companies in stable industries with long runways of growth...
This is because 100-baggers need time to grow
At the same time, the average company’s lifespan on the S&P index is shortening as shown in the chart below:
The key is to seek companies with economic moats that allow them to outgrow other companies and dominate their industries
At the same time, the average company’s lifespan on the S&P index is shortening as shown in the chart below:
The key is to seek companies with economic moats that allow them to outgrow other companies and dominate their industries
10. Share buybacks accelerate returns — when done right
After share buybacks, the number of outstanding shares will fall and cause EPS and the share price to jump
Warren Buffett famously agrees with share buybacks when shares are trading below their intrinsic value
After share buybacks, the number of outstanding shares will fall and cause EPS and the share price to jump
Warren Buffett famously agrees with share buybacks when shares are trading below their intrinsic value
For years, I've studied the traits of the most successful investors & stocks of the last century
I now teach what I've learned in @SavvyInvesting_
If you enjoyed this thread, please:
- Retweet the original tweet
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I now teach what I've learned in @SavvyInvesting_
If you enjoyed this thread, please:
- Retweet the original tweet
- Follow @FiSavvy
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