value and opportunity

Who doesn’t like to own a stock which increases by a factor of 100 ? The introduction of the book promises that it will tell the reader all he/she needs to know about 100 baggers and that anyone can invest in them.

The book is based on the original “100 to 1 in the Stock Market” from Thomas Phelbs but with a updated list of actual 100 baggers in the US market.

The book then starts with some “true stories” of people who private investors who made a 100 bagger investment moving to the “coffee can” principle which means that you invest for the really long-term. Then come a few more detailed studies on some stock who went up more than 100 times such as MTY, a Canadian restaurant chain, Monster Beverage, Amazon. Electronic Arts, Comcast, Pepsi and Gillette.

Funnily enough Home Capital Group is also mentioned as a great “high ROE multi bagger” which you should “Hold as long as the company can achieve said returns”. Tough luck with that one.

In general, the author advises to look at high ROE and owner operated  companies pr at “Outsider companies”. In this section Valeant is mentioned as such an “outsider company” which in fact turned out to be a real outsider but not in the positive way…..

Of course such a book would not be complete without looking at Berkshire Hathaway and Warren Buffett. Funny enough the author wonders why there are not more Berkshires out there as doing insurance and investing the float seems to be so simple (hint to the author: The “Insurance float model” is simple but not easy…….).

The author also mentions the Kelly criterion and advises to bet big if a good opportunity arises. Buybacks are subject of a small chapter and also moats are touched briefly.

Towards the end of the book, there are more general topic chapters and a summary what to look for if you want to identify the next 100 baggers. What you need is the following:

1. Growth ( a lot of it)
2. The stock has to be cheap in order to profit from multiple expansion
3. you need a moat
4. the company should be small (Google will not go up by 100x anymore)
5. owner operator
6. long investment horizon
7. good filters required
8. a lot of luck

The author then acknowledges that there is no “Magic Formula” to find 100 baggers which is somehow an anticlimax to the introduction. But at least it is an honest assessment.

Summary:

I am a little bit torn here. This isn’t a bad book and the author mentions a lot of the right things. On the other hand, there is little original content in the book. The author mostly reproduces material from famous investors. With a few exceptions he reproduces the same quotes from Graham, Buffett, Klarman etc. which I have read already a 100 times. Personally for instance I cannot hear the story about See’s Candy anymore, unless Buffett calls me directly to talk about it….

The author even outsourced the case studies to some investment firm and just quotes the analysts who actually did the analysis.

The “core product” of the book is then the table of 100 baggers at the end. However I am not sure how it helps to identify the next “cheap compounder”.

I think there is one big aspect missing in this book: There is no strategy which works for each and every investor. In my opinion, the key to long-term success is to run a strategy which fits best to the psychology of the investor. Sitting on a stock for 30 years or more is a strategy which sounds good on paper but will be only achievable for a very small minority of investors. Unfortunately the author does not touch this “behavioural aspect” of investing which in my opinion however is much more important than anything else. Filtering and picking promising stocks is just a very small part of long-term success in investing.

So in the end I would recommend this book only to relatively novice investors who want to learn a little more on the power of long-term compounding.

For someone who knows already all the investment classics, the book does not add a lot of new insight.