100 Baggers – Chris Mayer Notes
This article is meant as a cliff notes of important tidbits that I took away from Chris Mayer’s great book 100-Bagger’s. 100 Bagger’s is one of my favorite investing books and I wanted to take some notes on it.
Chris Mayer’s book was based on a older book of the same name by Thomas Phelps. That book is also a very good book. Chris meant his book as a modern update of that book. Both books are about 100 baggers or stocks that go up 100x. The below table summarizes a key message of the book. To get those big 100 bagger returns a company needs to grow revenues and profits at a high clip for a long time. And thus Chris prepares you for how to “Buy right and Hold on”.
| Return | Years to 100-Bagger |
| 14% | 35 Years |
| 16.6% | 30 years |
| 20% | 25 Years |
| 36% | 15 Years |
Chapter 4
In Chapter 4 Chris summarizes a number of past studies on multi-baggers which I’ll summarize below. These studies speak to the statistical characteristics that 100-Baggers display.
Tony’s 100 Bagger’s
Tony a man who say’s “he just like’s to to analyze stocks” had this to say about 19 100 bagger’s he researched.
– Large moves in Stocks usually have growth in earnings and earnings multiples
– Periods of P/E expansion tend to coincide with periods of accelerating earnings Growth
– Attractive opportunities come from stocks that have been beaten down and forgotten due to years of losses and then return to profitability
– During periods of rapid stock price appreciation stocks can reach high P/E ratios. Which doesn’t mean you should sell.
Motilal Oswal 100-baggers
This next set of attribute’s was brought to you by a firm in India.
The firm Motilal Oswal created an acronym called SQGLP
– S = Small Companies
– Q = Quality of business and management
– G = Growth earnings must be high
– L = Longevity of both Q and G
– P = Price must be cheap
Martelli’s 10-Baggers
This one only studied measly 10-baggers.
– Low Entry Price
– Must be small. Most of the 10-baggers he found had market caps under 300mm
– Patience is critical. For many years the stock could go nowhere
To summarize, these studies that Chris highlighted in chapter four tell us to get a 100-bagger we need to find a company which is cheap, small and growing.
Chapter 5
In chapter 5 Chris brings in real life company’s that provide color on what it takes to become a hundred bagger.
First though he reminds us of the power of holding onto investments with an example.
If you buy a stock that returns about 20% annually for 25 years, you’ll get a 100-bagger. But if you sell in year 20, you’ll only get about 40 to 1 before taxes
Chris Mayer – 100 Baggers
40 to 1 is pretty good but you gotta hold for that full 25 or else you leave a lot of money on the table.
Now back to the real life companies. Chris found 365 companies from 1962 that 100 bagged. These companies come from a diverse set of industries. Below is a list of the top 10 hundred baggers sorted by total return. As you can see the diversity of industries is immense with an insurance, railroad, tobacco, a couple oil companies and more. The only generalization Chris can make is that the 365 companies grew for a long time at a fast rate. Also that the median sales figures for all 365 companies at the start of their 100 bagger journey was $170 million with a median market cap of $500m. This implies that the median price to sales figure was around 3 times which isn’t really that cheap based on past metrics. So to find a 100-bagger you must look towards the future.
Top 10 100-Baggers
| Company Name | Industry | Total Return |
|---|---|---|
| Berkshire Hathaway | Conglomerate/Insurance | 18,261% |
| Kansas City Southern | Railroad | 16,931% |
| Altria Group | Tobacco | 15,120% |
| Wal-Mart Stores | Retail | 12,382% |
| HollyFrontier Corp | Oil | 12,279% |
| Franklin Resources | Investment Manager | 11,363% |
| Forest Lab | Pharmaceutical | 7,874% |
| TJX Companies | Clothing Retail | 6,946% |
| Southwest Airlines | Airline | 5,478% |
| Newmarket Corp | Oil | 5,077% |
Chris writes you want to find companies with national or international markets.
Company’s like
Comcast
Aflac
Dollar General
Lockheed Martin
Each one of the companies listed above were 100-baggers and each one had a large market. Another interesting stat was that the median time to become a 100-bagger for all 365 companies was 16 years.
Amazon is the prefect example of a company with a large market. When Amazon first started online sales as a percent of retail sales was very low under 1%. Now as of 2022 this has hit 14%. This increase in market size and Amazon’s ability to capture it has led to Amazon becoming a 100-bagger.
Chris in this chapter walked through 5 case studies in this chapter which I’ll summarize with why I think they became 100-Baggers.
1. Monster Beverage
A. Innovative Marketing – Their packaging appealed to their target market.
B. Asset Light – Did not manufacture their own drinks which would have tied down a lot of their capital. Instead they focused on creating new drinks.
C. Focus on Core – Before Monster Energy Drink the company had a host of other products which they slimed down to focus on just a couple.
D. Alot of Marketing – They spent a ton on marketing their first few years to grow which hurt profitability. Which in hindsight turned out to be good.
2. Amazon
A. Large Market Size: Online sales as a percent of total retail sales was very small when they first started
B. Reinvestment: Amazon did not show profit for years due to investing it all into R&D. Adding back R&D would have shown a 10% margin.
3. Electronic Arts
A. Execution – Time and time again they release great games that dominated their categories
B. Licenses – Acquiring the sports licenses to their sports games destroyed the competition. This gave them a monopoly like element.
4. Comcast
A. Stable Sales – Cable subscribers pay the same amount every month. This predictability allowed for the company to invest heavily into the future.
B. Reinvestment – The company didn’t show profits for a long time due to investing to get more and more subscribers. This highlights the importance of growth vs maintenance CAPEX.
5. Pepsi
A. International Expansion – Large market opportunity
B. Expansion into new products – The snacks business became a great source of revenue and sales. The also went into fast food.
6. Gillette
A. Marketing – Was one of the first to advertise on TV
B. R&D – The company was also researching and trying to make their product better
C. Patents – The company would patent improvements to their product which created a moat around their business
Chapter 7-8
In these chapters Chris discusses management. A good company is a fast horse but you still need a good jockey to led the horse to the finish line. Not sure why I felt the need for that analogy. And in particular Chris recommends owner-operators. This is compared to a agent manager. The major difference between the two is that the owner operator has a large portion of the wealth at stake at the company. This leds to longer term decision making and better long term returns. The diagram below illustrates this.
Along with a large personal stake in the company your also looking for excellent capital allocation. The five capital allocation decisions management has are
1. Invest in existing operations
2. Acquire another business
3. Pay dividends or buyback stock
4. Pay down debt
5. Raise Money
Evaluating management on these actions tell if their a management team you want on your horse or one you don’t.
Chapter 15 The Summary
Chapter 15 is the last chapter and summarizes the main lessons throughout the book. If you wanted to read this book quick chapter 15 would be the chapter to skip to.
Chris lists 10 principles to 100-baggers that I’ll summarize below.
1. “When looking for the biggest game be tempted not to shoot at anything small” – Thomas Phelps
Basically don’t waste your time with non 100-baggers when your looking to invest.
2. Growth
You need lots of sales and earnings growth for a company to 100 bag.
3. Cheaper is better
You don’t want to pay to much for a business cause you’d be fighting multiple fad on your way to 100 bagger status. But at the same time good companies already have a fan base so you won’t get them too cheap. Chris said in an earlier chapter that the median price to sales for a company at the beginning of their 100 bagger journey was 4 times. So kinda on the expensive side.
4. A Competitive Advantage is Required
An ability to reinvest at high returns on capital for a long term is crucial for 100-Bagger status. The only way that’s possible is if they have an advantage of competitors.
5. Smaller Companies Preferred.
Easier to go from 100 million to 10 billion than 10 billion to 1 trillion. At least currently.
6. Owner Operator
You need a excellent management with the right incentives to execute and grow the company 100x
7. Patience Young Padawan
You need to give the investment time to grow. The median 100 bag took 16 years.
8. Ignore the Noise
There’s alot going on in the world. You need to figure out the most important things and ignore the rest.
9. Luck
It’s better to be lucky than smart.
10. Sell Slowly
Try not to sell ever. But if you have to only sell cause
– A mistake was made in your analysis
– The stock no longer fits the 100 bagger mold
– something alot better came around
That’s all folks.
100-Baggers by Chris Mayer’s is my favorite investing book. I give it a 5/5 would recommend.
