The Magic of 100 Baggers

paper money in tilt shift lens

I recently listened to Mohnish Pabrai’s talk that he gave to the students of NMIMS, a prominent college in Mumbai. Pabrai spoke about how he would have done much better in his investment career (which by the way is already in the top 1% percentile) if he would have just focused on the getting more multibaggers in his portfolio.

If you are focused on finding the potential 10xers or 100xers – you don’t need to keep looking for 50 cent dollar bills and such.

The other good part is you don’t need too many. Over a longish career if you get even 1-2:100 baggers – you are going to have one hell of a CAGR on your portfolio.

Now I’ve been an avid fan on Mohnish and have been practicing value investing for more than a decade now. I’ve had my share of multibaggers ranging from 2x to 10x . No 100xers for me atleast of now.  In contrast however, my late father though- never read any books on value investing, no finance education ( he was a high school teacher) and despite almost everything he invested in going to zero (Uti Mastershare, corporate FDs in the mid 90s), he still came home with a 100 bagger and a better CAGR.  Just one of his investments which was left untouched for over 2-3 decades effectively turned a hundred bagger and some. 5000 INR invested in the mid 80s in Vam Organics (now Jubilant Industries) returned over 5 lakhs until the mid 2000s. We sold some of it for a down payment on a house in 2004. If we count the returns on house which we recently sold at a 10x – as a family we really had a1000x multiple on that investment between equity and real estate. The proceeds from that house are part of the equity in my new home. Who knows what it will be worth when my daughter inherits the same.

That’s the power of compounding.

The point I’m trying to make here is that its possible to get 100 baggers just with a bit of luck and some long term patience.

Imagine what’s possible with a better guidance, words of wisdom and a much more disciplined approach.

This is where I would recommend a couple of books that you should have on your reading list 

100 to 1 in the Stock Market: A Distinguished Security Analyst tells How to make more of your Investment Opportunities.

Thomas Phelps

100 baggers – Stocks that return 100-to-1 and How to find them

Christopher Mayer

Coincidentally both these books were recommended by Prof. Sanjay Bakshi . The first one by Thomas Phelps wasn’t available in Ondia at the time and the book was also out of print. I still remember this as the most expensive book I’ve ever purchased. I managed to get this on Amazon US for an effective price of 9000 INR + . It was well worth the price though.

The most recent book by Chris Mayer was essentially a follow up to Phelps’ book and also a very good contemporary read. Reading both of these will give you a fairly decent idea of the ingredients that go into the making of a 100 bagger concoction.

Ofcourse there is a great degree of luck when we are crystal gazing in this manner – but there is a little bit of science that helps in the art of stock picking . Even if you don’t esnd up with a 100 bagger – I am pretty confident that if you follow the principles laid out, you will have your share of 2-10xers at the very least.

Few excerpts from the books are below

#3 Lower Multiples Preferred

Let’s say you pay 50 times earnings for a company that generated $1 in earnings last year. Think what you need to happend to make it a 100-bagger. You need earnings to go up a hundred fold and you need the price earnings ratio to stay where it is at 50. If the price earnings raio fall to 24 , then you need earnings to rise 200-fold.

Don’t make investing so hard

Excerpt from Chapter 15 of Chris’ Mayer Book.

Real growth is as simple and certain as arithmetic if the book value of a stock is increased by retained earnings while the rate of return on invested capital remains constant. To illustrate, let us assume our company has a book value of $10 a share, with no senior securities, and is earning 15 percent on its invested capital. In this example, book value and invested capital per share are the same. Let us assume further that our company pays no dividends.

At the end of the first year per share book value will be $10 plus 15 percent of $10, or $ 11.50. At the end of the fifth year book value will be $20, and at the end of the tenth year $40. If our company can continue to earn at the same rate on this invested capital, its earnings in ten years will be four times the starting figure.

If our company pays out a third of its earnings in dividends, the amount plowed back each year will be 10 percent per share book value. At that rate it will take nearly fifteen years, instead of ten, for book value and earnings to quadruple.

Earning at 15 percent and paying no dividends, our stock would grow one hundredfold in thirty-three years. Earning 15 percent and paying a third of earnings in dividends, out stock would take more than forty-eight years to multiply its assets and earnings by 100.

Excerpt from Thomas Phelps’ book

Both these books are a treasure trove of valuable information and I would highly recommend you add them to your reading list.

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