2/ Chris got inspired by Thomas Phelps who wrote an equivalent book in 1972 called “100 to 1 in the Stock Market”. He became aware of it through a talk by Chuck Akre titled “An Investor’s Odyssey: The Search for Outstanding Investments”.
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3/ Phelps had a 42 year career in the markets as a bureau chief for Wall Street Journal, editor of Barron’s, partner at a brokerage firm, head of research at a Forture 500 and partner at Scudder, Stevens & Clark (bought out by Deutsche Bank). He died in 1992.
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4/ Phelps had some simple messages that most value investors are aware of: Wall Street is built on activity and not results. Investors too bite on what’s moving and can’t sit on a stock that’s not going anywhere. This leads to many lost opportunities of mammoth returns.
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5/ Phelps says that Investors should focus on the business, not market prices. Look at EPS, ROE and the like. Ask yourself, if I didn’t know the share prices and was already an owner of this business, would I sell my shares or not?
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6/ Phelps advises looking for new methods, new materials, and products that improve life, solve problems and allow us to do things better, faster, cheaper. These make good companies to buy and hold.
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7/ Phelps is quick to add he is not advocating blindly holding onto stocks. “My advice to buy right and hold on is intended to counter unproductive activity, not to recommend putting them away and forgetting them.”
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8/ Phelps says that you should sell rarely, and only when it is clear you made an error. One can argue every sale is a confession of error, and the shorter the time you’ve held the stock, the greater the error in buying it.
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9/ Phelps’ book listed 365 100-baggers. The cutoff date was 1972.
@chriswmayer decided to update his study. He studied all the 100-baggers between 1962-2014. It actually costed over $50,000 just to get the data. By a strange coincidence the study also returned 365 stocks.Prikaži ovu nit -
10/ The book starts by describing the so called “coffee can portfolio”: http://csinvesting.org/wp-content/uploads/2016/12/the-coffee-can-portfolio.pdf … The idea of the coffee can portfolio is simple: you find the best stocks you can and let them sit for 10 years.
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11/ Buy and hold can be difficult. The coffee can approach offers a crutch to 100-baggerdom. It can help you “hold on”. It works because it keeps your worst instincts from hurting you, and is practically free to hold and manage.
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12/ An extreme example of a coffee can portfolio is the Voya Corporate Leaders Trust Fund. It bought equal amounts of stock in 30 major US corporations in 1935 and hasn’t picked a new stock since. It has beaten the S&P 500 for 40 years.
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13/ Contrast this with the average fund that has 160 stocks and turns them over every year. That’s not investing, that’s how Wall Street makes money. And they come with all kinds of fees vs the relatively low (but not too low) 0.52% of the Voya Corporate Leaders Trust Fund.
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14/ You don’t have to put all of your money in a coffee can portfolio. You just take a portion you know you won’t need for 10 years. Stick with established companies with long runaways of growth ahead and the ability to keep compounding capital at a high rate.
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15/ Another study of 100-baggers was published by Tony at TS Analysis: http://alphaideas.in/wp-content/uploads/2015/08/100-baggers.pdf … He looked at 19 stocks and drew four conclusions: A. The most powerful stock moves tended to be during extended periods of growing earnings accompanied by an expansion of P/E.
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16/ B. These periods of P/E expansion often seem to coincide with periods of accelerating earnings growth. C. Some of the most attractive opportunities occur in beaten-down, forgotten stocks, which perhaps after years of losses are returning to profitability.
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17/ D. During such periods of rapid share price appreciation, stock prices can reach lofty P/E ratios. This shouldn’t necessarily deter one from continuing to hold the stock. The combination of rising earnings and a higher multiple is what drives long term explosive returns.
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18/ A similar 100 baggers study was performed by Motilal Oswal for the Indian stock market: https://m.motilaloswal.com/downloads/19-wcs-2014-100x-12-dec-2014.pdf … Huge growth in sales, margins and valuations was the common denominator.
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19/ The analysis showed that 100 baggers have some common characteristics, referred to as SQGLP: * Size is small. * Quality is high for both business and management. * Growth in earnings is high. * Longevity in both Q and G. * Price is favorable for good returns.
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20/ Patience is the key to capitalize on a 100-bagger move. Very few can even conceptualize an 100x return on their investment. Even an extreme 50% annual compounder needs 11 years to 100x. A 20% compounder needs 25 years.
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21/ Another study was done by Kevin Martelli for 10-baggers, the second part of this presentation: https://microcapclub.com/wp-content/uploads/2017/10/A-Perspective-on-Value-Investing.pdf … He found 3,795 stocks over the last 15 years. Most were unpredictable, but he also selected 100 that rational value investors could reasonable discover.
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22/ His conclusions are that there is no magic formula, you need a low entry price, you should focus on small companies (microcaps, below 300mil), there is ample time to buy good companies, and patience is critical.
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23/ 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. Investing is a reductionist art.
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24/ Think big. A 20% annual compounder needs 25 years for 100x. But if you sell at year 20 you’ll “only” get 40x (before taxes). The last 5 years will more than double your overall return. You must have patience.
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25/ The average time for a stock to become a 100 bagger in the book was 26 years (also the median). The fastest was Franklin Resources at 4.2 years! Other well known names at under 10 years are Time Warner, Valeant, Dell, L Brands, QCOM, CSCO, Monster, Southwest, and more.
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26/ Analyzing Monster Beverage, Chris arrives at 3 components of a detectable formula for 100-baggerdom. These are: rapid increase in sales, rising profits and rising ROE.
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27/ Don’t get stuck in “good” traditional value investing ratios. You ought to prefer to pay a healthy price for a fast growing, high-return business than a cheap price for a mediocre business. A 20% grower at a PE of 20 is better than a 10% grower at a PE of 10.
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28/ You need to screen for and invest in high ROE businesses. Many steady ROE companies have the potential for 100x. Aim for 15% or better in most years, earned from high profit margins and not leverage.
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29/ Beware of stock buybacks that boost ROE. Without sales growth the ROE means nothing and you’re most likely looking at a value trap. IBM is a good example of that. Good ROE and “cheap” but stagnant revenues. It’s not going to go anywhere.
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30/ Another important finding was that multi baggers have owner-operators. Skin in the game turns operators into long term capital allocators that don’t destroy value.
@nntaleb’s book: https://www.amazon.com/Skin-Game-Hidden-Asymmetries-Daily/dp/042528462X … analyzes the concept amazingly well regarding all aspects of life.Prikaži ovu nit -
31/ The Virtus Wealth Masters Fund is an investment vehicle for those who want to buy companies with owner-operators.
@virtushttps://www.virtus.com/products/horizon-wealth-masters#shareclass.I/period.quarterly …Prikaži ovu nit - Još 19 drugih odgovora
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