How to find a 100-Bagger and...
A Portfolio Top 10 Inside Look, Conviction Stock, Tweets, Stock Picks Review, and Q&A
Review: 100 Baggers by Christopher Mayer
Stocks that return 100-to-1 and how to find them
I read 100 Baggers by Christopher Mayer this week. It will join the list of investing/finance books that I reread every couple of years. Out of the numerous books I have read on the topic, that list includes:
One Up On Wall Street by Peter Lynch
I Will Teach You to Be Rich by Ramit Sethi
The Motley Fool Investment Guide by David and Tom Gardner
The Simple Path to Wealth by JL Collins
Common Stocks and Uncommon Profits by Philip A. Fisher (Starting on Pg. 31)
100 Baggers is not the investing book I would start with on my journey (Motley Fool Investment Guide or Simple Path to Wealth would be my suggestions), but it is an excellent look at the investment mindset I continue to hone… how to hold a stock for the long term to gain generational wealth.
I offered an example on social media of Apple (Ticker: AAPL). On the date that Apple released the iPhone for $499.00, you could have invested in the stock at a price of $4.32/share. If you had bought an iPhone and also invested the same amount in the stock, then that $499.00 would be worth $15,445.89 as of December 30, 2020 or a 2,995% increase. This would be a 30-Bagger from July 1, 2007.
I placed my first order on Amazon.com (Ticker: AMZN) for 3 books totaling $29.77 on December 27, 2002. If I also invested in AMZN that same amount, then it would be worth $5,097.43 as of December 30, 2020 or a 17,022% increase. A 170-Bagger!
Key 100 Bagger Takeaways:
(1) - Size matters
Asking Apple to hit $222T (100 times their current 2.2T valuation) in the next 25 years will probably be a harder ask than asking a $1B company (2,200 times smaller than Apple) to hit a $100B valuation in the same timeframe. Not impossible, but more challenging. The amount put into a stock also matters. As you can see with Amazon, $30 would have turned into a lot of money, but if I had invested $10,000, then those shares would be worth $1.7 million today.
(2) - Stick with leaders not bosses
A leader’s vision will guide the company. A bosses vision will drain the company. Founders are preferred, but there have been some excellent CEOs like Dominoes’ (Ticker: DPZ) Patrick Doyle who created a 90-Bagger. Does management have skin in the game or own shares in the company too? How do they sound on interviews? Read their letters every quarter or year when they release earnings. Are they operating the business for growth or just managing earnings? Are they buying back shares correctly, or wasting cash? Find the companies with generational leaders.
(3) - Find growing companies
They might be growing revenue, or earnings, or both. Regardless of valuation, growth is key. A company like Monster Beverage (Ticker: MNST) had some years with 10% or less growth, but bounced back the next year. Find those growing 20% or higher with a large total addressable market or TAM.
(4) Coffee can your picks
Hold on to your 100-bagger picks. Don't get bored with your portfolio and make changes or think a stock is broken and sell. That 40% drop is the short term voting machine (a popularity contest). Stick with your investment thesis for the long term. And begin searching for the next 100-Bagger.
(5) - Luck helps
You can do the research, find a great leader, a growing company, and a huge potential market, but luck still helps. AMZN's Web Services (AWS) unlocked unprecedented growth for the online retailer. Sometimes a company makes a decision that creates a brand new market. Luck is the crossroads of preparation and opportunity. Has the company prepared well enough to take advantage of the opportunity?
Key 100 Bagger Questions:
Not every book is perfect, and 100 Baggers is no different. It had a few key ideas that seemed to conflict and are addressed below:
Question (1) - What is the importance of a moat?
A moat in medieval times was a wide ditch filled with water and intended as a defense against attack. In modern times, a moat is some aspect of a business that protects it from other competing companies. For instance, a network effect is considered a moat for companies like Facebook (Ticker: FB) with 2 billion users. The book identifies the importance of a moat, but also highlighted companies that didn’t have a moat when they started out and where investing in them would have earned 100-bagger returns.
For instance, competitors dwarfed Comcast (Ticker: CMCSA) when it started. MNST was going up against Red Bull. No one thought AMZN could compete with Walmart (Ticker: WMT). A moat is excellent if they are a small company in a new industry, but in a more mature industry, like real estate, for 100-bagger potential it might be more important to be a disrupter like Redfin (Ticker: RDFN).
Question (2) - How important is portfolio size?
A dichotomy arises between a concentrated portfolio and a “never selling” portfolio. By keeping a portfolio concentrated in 15-20 stocks, the only way to add a new stock would be to sell one of the 15-20 stocks in the portfolio. Never selling infers a sizable portfolio over time if you buy 3-5 stocks a year (in 10 years an investor could have a portfolio of 30-50 stocks). This dichotomy is something I have wrestled with over the last couple years of investing. To each their own on portfolio size.
Question (3) - How important is return on equity or ROE now?
ROE is a ratio that measures the value of the company after all debts are paid (called shareholder’s equity) compared to the amount of money that a company made in the year (called net income/profit). Basically identifying what percentage the company’s equity returned in profits. The challenge is that companies are pouring money back into the business and taking losses (not profits), using the very successful Amazon model. This model has been mimicked by a lot of successful companies to the detriment of the ROE, which was a key metric in 100 Baggers. Investors might need to focus on cash flow, growth, and leadership versus the ROE.
Conclusion: There are nuggets galore in this book. If you have some experience investing in individual stocks, or would like to take a small portion of your investments to invest in individual stocks, then this is one to pick up and absorb.
Inside Look: Top 10 Holdings in My Growth Portfolio
As of December 30, 2020
Cash - 14.4% (Up 11)
MercadoLibre - MELI - 11.3% (Down 1)
DocuSign - DOCU - 7.7% (Down 1)
Chewy - CHWY - 6.7% (Up 1)
DraftKings - DKNG - 5.3% (Down 2)
American Express - AXP - 5.2% (Down 2)
Trade Desk - TTD - 4.0% (Down 1)
Pinterest - PINS - 3.2% (Down 1)
Teladoc Health - TDOC - 3.2% (No Change)
Shopify - SHOP - 3.1% (No Change)
**Ulta Beauty (ULTA) dropped out of the top 10 from the previous month and is currently #14 in the total portfolio. These top ten total 64.1% of my overall portfolio, which includes 32 total stocks.
Conviction Stock Highlight: DocuSign (Ticker: DOCU), where agreements are now online.
DocuSign (“DOCU”) is an eSignature and Agreement cloud ecosystem. The largest portion of their business comes from their eSignature function to sign documents. They have also created an Agreement cloud that uses artificial intelligence to catch mistakes and identify risks in contracts. They will soon be adding a notary function to it, leaving no reason for paper copies of documents. Lizette and I used DocuSign to eliminate mountains of paperwork when we purchased our house.
Total revenue increased 53% year over year during their third quarter and their gross margins were 74%. From the @DocuSign third quarter call, CEO Daniel Springer said “I don't think anyone has really built that market to help people do that analysis across all of their agreements.” He was describing a potential new market for their Agreement Cloud, where their AI could analyze a company’s contracts/docs to help them make better future decisions.
I currently have a full position in DOCU, but as my portfolio grows and I can increase by position size baseline, I will definitely look to DOCU. This is a company I see being much larger in 10 years.
Tweets of the Week
4 Stocks Working to Improve Healthcare
This pandemic called attention to the continued challenges of the healthcare system with deficiencies seen in access to adequate healthcare, prescription prices, and navigating the system. As the population ages and grows in size, it will only become more challenging.
Recently, health-tech companies have stepped in to fill the gaps and address those challenges head on, leading to preventative care, data driven platforms, telehealth, connected health devices, and total patient lifecycle care. I selected a basket of stocks with these solutions in mind, and their long term potential for growth.
Teladoc Health, Inc. (Ticker: TDOC) - an entire virtual care strategy
GoodRx Holdings, Inc. (Ticker: GDRX) - saving consumers money on prescriptions
Progyny, Inc. (Ticker: PGNY) - fertility and family-building benefits leader
CareDx, Inc. (Ticker: CDNA) - full-service solution for transplants
As of December 31, 2020, the basket of stocks is beating the S&P 500 by an average of 1.2% after being chosen on December 15, 2020. This basket will also be tracked for 3 years.
If you would like to receive my future picks then…
Weekly Q&A
Q: I only have $100 to invest. How can I get started when one share of Amazon costs over $3K?
Most brokerages have instituted an amazing new feature called fractional shares. An investor can now buy a portion of a share of stock, whereas in the past you had to buy a full share. My brokerage, Fidelity, allows an investor to purchase as little as $1 of a stock. See the Fidelity App below:
It no longer matters how much money you have to invest. An investor receives the same percentage gains/losses as if they owned a full share. So now you can find your 10-20 best ideas, and purchase an equal amount in each company. The saying goes, “the best time to invest was 10 years ago. the second best time to invest is today.”
**For Fidelity, an investor can only buy dollar amounts during the hours the market is open.
Have a question, then leave a comment:
Thank You!
If you’ve made it this far, then you are an amazing human. Let me know what you think by leaving a comment. Or drop me a question. Share it with others who you think might appreciate the information. Looking forward to sending out the next issue!
**I am not a financial advisor, so please don't buy/sell anything based solely on what you read here and do your own due diligence.
$CLSK 100 bagger?