- Paperback: 210 pages
- Publisher: Laissez Faire Books; First Edition edition (1 September 2015)
- Language: English
- ISBN-10: 1621291650
- ISBN-13: 978-1621291657
- Product Dimensions: 15.2 x 1.4 x 22.9 cm
- Boxed-product Weight: 717 g
- Average Customer Review: 1 customer review
- Amazon Bestsellers Rank: 7,435 in Books (See Top 100 in Books)
100 Baggers: Stocks That Return 100-to-1 and How To Find Them Paperback – 1 Sep 2015
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First of all, this subject matter is fascinating! It is something every investor at any stage should understand. Rather than relying on hunches or cocktail party ideas, Chris Mayer's book really tries to uncover where the best ideas can come from. If you don't work in the mining or energy sectors or technology or biotech areas where early hot picks can do very well, one needs a formula to follow. Mayer has shown those bright enough to get a copy of his book how to uncover future potential 100-baggers! --David A. MacNicol (President, Portfolio Manager at MacNicol & Associates Asset Management Inc.)
About the Author
He graduated magna cum laude with a degree in finance from the University of Maryland and has an MBA from the same institution. He worked as a corporate banker for a decade before starting his newsletter in 2004. He lives and works in Gaithersburg, Maryland.
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I like this book for several reasons:
1- Originallity. Most stock investing books focus on one of the two most common approaches: fundamental or technical analysis. This one however does not follow any dogma but focuses only on 100 baggers, which is a fascinating topic by itself.
2- Content. Because the author does not follow any predefined framework, he looks at every element that may be related to the origination of 100 baggers. Though at times he may sound repetitive, each chapter is a world in itself. The book is loaded with a variety of well researched topics, in addition to the already invaluable statistical information on 100 baggers.
3- Style. The author is simply a very good writer. He is effective at conveying his message and knows how to keep the reader engaged. It makes for an entertaining and interesting read.
There are other aspects of the book that I liked a lot. For example, the author quotes and references a lot of other interesting books and papers that may expand on a specific topic. This also means that the author is to some extent already doing the work of processing and summarizing all that information for you. Not a minor point if you ask me.
Related to item 1 above, I'm glad that the author has not made use and abuse of the name of Ben Graham. In fact, I'm not sure if he mentions him even once. I don't know about you folks, but I find this quite refreshing. Not to discredit any of the great contributions Graham made to the field, but I'm kind of tired of seeing Graham's name in the first paragraph of every stock investing book.
On the other hand, I have to admit that I was rather skeptical when I started reading this book. Because of my background in statistics, I just could not easily digest the author's approach of "only focusing on 100 baggers to try to find the magic sauce". From a strictly scientific standpoint, what one should do is to take all type of stocks (not only the successful ones) and then find a model that explains the returns of all of those stocks. By finding a model, I mean finding a collection of features that winning stocks have and losing stocks miss (or vice versa).
From an statistical point of view, the problem with the author's approach is that the key factors he finds for 100 baggers may also be present in losing stocks. He does not know that because he did not look at those. As a consequence, he does not know what proportion of the stocks with those key factors are winning/losing stocks. In other words, he does not know the probability for a stock with those attributes to be a winning one.
Now, why am I giving this book a 5-star rating in spite of these shortcomings? Well, there's at least a couple of reasons:
A- Conducting a proper scientific research on this topic is extremely difficult. Because 100 baggers may take decades to actually multiply their value 100 fold, the database to be used for research should span at least those many years. This is what the author did here and he deserves kudos for that. Now, if you also want to add all the non-100 baggers to the analysis, you not only need to think about existing companies that never got to the 100-bagger status but also about those stocks/companies that no longer exist. Good luck dealing with that piece of the data. This is important because many of those non-existing companies ended up going bankrupt (some others merged or were acquired by other companies). Leaving those out would be almost the same as focusing exclusively on 100-baggers. This is because the surviving non-100 baggers do not really add much information to the analysis -for the real risk measure is that of losing 100% of your capital in any of your positions, not merely the volatility of the stock price. Under those circumstances, focusing only on 100 baggers does represent a sensible alternative.
B- The argumentation is conceptually sound. All the ideas presented make sense. For example:
*good companies are those that consistently make money - look for those with high ROIC and a moat.
*invest in companies with a capable, honest, and committed management
*look for companies with growth potential - small caps over large ones and companies with a disruptive product/service/business model.
*don't pay stupid prices
*stay for the long haul -sooner or later the market recognizes the value of sound and consistent businesses.
If I had to place this book in any of the different stock investing categories, I would place it in the Quality Investing section. This is Warren Buffett's investment style, as he long ago moved away from the traditional Value Investing approach. This is also Phillip Fisher, Peter Lynch, and Charlie Munger's philosophy. "Buy wonderful companies at a fair price" or "Growth at a reasonable price" kind of thing.
Finally, the key insight of the book: the average 100-bagger requires 26 years to multiple its value 100 times. This is equivalent to a 19.4% CAGR. Assuming a starting capital of $10,000 and annual additions of $10,000, compounding capital at this rate would leave you with a little over 6 million dollars after 26 years. Not bad considering that you only contributed a total of $260,000 in cash. Now, this is assuming that you will be able to grow your entire portfolio at the pace of an average 100-bagger. This is very unlikely to happen. Using a 16% CAGR instead (still a pretty good rate) leaves you with 3.4 million dollars after 26 years -considerably less than 6 million. A 14% CAGR leaves you with 2.4 million. Still great money...but in any of these cases you still have to wait 26 years!
On the other hand, consider the alternative of buying and holding an index fund. Historically, the US equity market has had a CAGR of about 10% including dividends. For the sake of being conservative, let's assume that we can only expect the overall market to make 8% going forward. Using this CAGR and assuming annual contributions of $15,000, leaves you with 1.85 million after 30 years. This is not all that different than those 2.4 million. Granted, we're contributing $5000 more a year and we're taking 4 more years to get there. However, because this is a very simple buy and hold index investing strategy, the results are almost guaranteed.
What I'm trying to say here folks is that the search for 100 baggers may not be as practical as it may seem. It is still a very long term, buy and hold investment strategy. And the problem is that you still have to do all that work to try to find those winning stocks (and I hope you do). Wouldn't it be easier to just focus on keeping your personal finances in order and save a little bit more every year? Then you just focus on living your life and stop worrying about these things. And by the way, in this analysis I do not even include the effect of taxes or company matches that employers offer with their 401K plans. They both play in favor of the index investing strategy.
And just so you guys know, any active trading strategy that can produce 50% annual returns will leave you with $1.7 million after only 10 years (assuming annual contributions of $10,000).
Mr. Mayer has done his homework - WELL ... as opposed to simply opining theories. He is well read in the realm of 100-baggers ... and conveys his discoveries easily and succinctly. He freely admits that there is no magic Search formula, but illustrates for what to look.
If you've often felt that Buffett doesn't tell nearly all he knows, read this ...
The author demystifies the concept of 100 baggers and systematically explains the thought process needed to identify and pick them. The final summary chapter and the list of the all the 100 Baggers in the appendix is very useful.
Now I am off to read the original book ( 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities) by Thomas William Phelps.
Note : Don't let the Title give you a false notion. This book is based on the time tested principles of Buy right and Hold long.