100 to 1 in The Stock Market – Thomas Phelps Review and Notes

Written in 1972, 100 to 1 in the Stock Market by Thomas Phelps served as the inspiration for one of my favorite investing books by Chris Mayer. Below, I’ve compiled notes on Phelps’ book, primarily for my own reference and study, much like I did with Mayer’s book. The term 100-1 refers to a stock that increases 100 times its original investment. As I went through the book, I made chapter-by-chapter notes, summarizing what I saw as the key takeaways from each section.

Chapter 1

Phelps opens the book with an Arab parable, where the moral is: those who ask for little in life receive little, those who ask for much receive much, and those who ask for too much get nothing. This parable sets the tone for the entire book, as Phelps likely views the pursuit of 100-baggers—stocks that increase 100 times in value—as “asking for much,” while day trading represents “asking for too much.” The rest of the chapter lists some stories of a number of investors who found 100 baggers with the main point being buy and hold on.

Chapter 2

Chapter 2 highlights numerous examples of 100-baggers from 1932 onward, reinforcing the importance of buying and holding. Toward the end of the chapter, Phelps recounts how he correctly predicted the market downturn in 1937, which didn’t recover until 1945. However, he reflects that, in hindsight, he would have been better off identifying strong stock opportunities during that period. He lists several stocks that went on to 100x, opportunities he presumably missed. Phelps concludes that smart stock selection generates far more wealth than attempting to time the market.

Chapter 3

This chapter asks why so many people have missed out on 100-bagger opportunities. Drawing from his experience obviously as a former elephant hunter, the author offers this advice: “When searching for the biggest game, don’t be tempted to shoot at anything small.” He emphasizes that overthinking market movements can be costly, even when you’re correct, referencing his own 1937 market prediction. Ultimately, the chapter reinforces that focusing on finding the right stock is the most profitable strategy. In essence, the chapter is about the power of concentration in investing.

Chapter 4

This chapter focuses on the fact that buying the best opportunities is hard in the moment because they usually don’t look great.
For Example
Crude oil sold at 10 cents a barrel in the 1930s. The good ole days. The cheap oil meant that coal energy wasn’t as competitive for energy production leading to coal stocks trading at very low levels. In particular Phelps looks at Old Ben Coal. By the 70s though if the investor had held he would have gotten a 262 bagger.
The investor in that scenario wouldn’t have been able to use profit margins, return on capital or valuation ratios to determine the investment.
Instead he would have needed to look and see

1. Coal businesses were unpopular in the 30s
2. Old Ben had massive coal reserves
3. American Energy demand would increase tremendously

Chapter 5

More examples of 100 baggers

Chapter 6

The author gives the list of 365 names that turned into 100 baggers from 1932 to 1971.

Chapter 8

These chapter deals with the uncertainty of investing and the side of the buyer and the seller. Also the author interviewed JFK’s dad which is pretty cool.

A main takeaway in the chapter.
If you don’t have losses you aren’t risking enough.

The author shares a legend of a founder of a bank who called a meeting with a manager who had no losses for the year “To make such a record you must of been turning down good loans. Next year I wanna see more losses”

How can a buyer and a seller have different opinions on a stock?
1. The seller may think he has a better place to put the money
2. Uncertainty of the future gives both buyer and seller different views on the stock
3. Nobody can be fully informed and views can be shaped by the varying amount of info a buyer and seller could have

Another takeaway
“When you buy a stock all your buying is the unknown future”
The past is only the past and may or may not have anything to do with the future.

Chapter 9

“In the country of the blind the one eyed man is king”
This chapter goes into the odds of a stock or the opportunity vs the risk. Since the future is uncertain a clean 10-1 risk reward ratio is not likely to be computed. But since everything is relative we can use other things to see the assumptions priced into securities.
Such as
1. Relative yields on stocks and bonds
2. Relative valuations of different stocks
3. Because a dollar of income from one source is worth a dollar from another source.

Example right out of the book
“Even at the 1970 low the market price of a dollar of Polaroid earnings was still more than twice the price of a dollar of earnings of the Dow-Jones Industrial Average. To warrant that relationship, Polaroid’s earnings must more than double relative to the Dow-Jones Industrial Average earnings and do as well as the Dow thereafter. But there will be no sound basis for expecting Polaroid stock to outrun the Dow-Jones Industrial Average unless, after Polaroid’s earnings more than double, the outlook is still more favorable for Polaroid than for the Dow. In effect, at the 1970 low, the Polaroid buyer was saying to the Polaroid seller: “I am so sure Polaroid’s earnings will more than double relative to the Dow that I am willing to pay you now what Polaroid would be worth if they had already more than doubled. Why will I do that? Because I believe that after Polaroid’s earnings have risen to the level I am now paying for, they will continue to rise faster than the Dow’s.” All this shows a high degree of confidence in Polaroid’s future, and great self-confidence in the buyer’s ability to fore- see Polaroid’s future. Both may be justified. Time will tell. But as investors we play blind man’s buff unless we thus define the implications of relative prices.”

Chapter 10

Last chapter a dollar of income from one company equals another. This chapter aims to dispel that and dive into the quality of earnings.

1. The author complains about lease financing which was off balance sheet up until recently saying the hidden leverage obscured comparisons between other companies who did not partake in it making return on capital metrics much different.
2. Another example is two companies one that does research and another who doesn’t. The company who does research should get a higher multiple of earnings as they have a chance to strike it rich from research while the other doesn’t and two they can also cut research increasing earnings. Research could be substituted for marketing, prospecting or any other expense that promotes growth. All else equal
3. Another example one company has been selling at very liberal credit terms increasing their accounts receivable to a far higher degree relative to sales than another company. The company with the lower receivable should trade at the higher multiple all else equal
4. Another example one company cuts corners on the environment and pollutes the river and air around it while the other is a good citizen and does not. The one who pollutes may be hit by a lawsuit from its neighbors and thus deserves a lower multiple compared to a good citizen all else equal
5. Another example one company pays pays competitive wages to and employees while to other squeezes its employees and pays as little as possible. The first company deserves the higher multiple as else equal as its less likely to have strikes or turnover and its earnings are of higher quality.

Chapter 12

Talks about Technical Analysis.
His conclusion is that technical work is not an alternative to fundamental security analysis but rather additional information that can have value. After fundamental work has been done.

Chapter 13

The author equates humans to dogs in this chapter in terms of intelligence.
Experience can sometimes have a suffocating grip on investors. Phelps shares a personal story of buying Southern Railroad stock at $8 per share after it had dropped from $160. At that price, the stock was equivalent to the annual dividend, and he even purchased it on margin. However, within a few months, the stock plummeted to $2.50, wiping him out completely. This event haunted Phelps, and looking back, he realizes that he took too few risks in later years because of that one negative experience.

Phelps shares another quip on not trying to time markets.
“Catching swings in the market even when one is reasonably successful at it makes pennies compared with the dollars garnered by those who buy right and hold on.”

This direct quote above came about as the Phelps tells another story of where he could of had a 700 bagger instead he sold out early. Netting a good gain but not nearly as much as he could of. Obviously this is all hindsight though.

Chapter 15

A lesson in morals.

“Remember that a man who will steal for you will steal against you”

Basically don’t buy a business that you don’t trust management.

Chapter 19

This chapter begins the meaty details of finding hundred baggers.

Stocks that have hundred bagged are no less likely to be found in the big exchanges than the OTC market according to Phelps research.

Hunting grounds to find hundred baggers

1. Inventions that enable us to do new things IE automobiles and telezion
2. New methods or equipment for doing thing more efficiently IE computers and tractors
3. Processes or equipment improving quality while reducing labor. IE disposable syringes and copiers. The is probably where automation and AI would be.
4. New and cheaper sources of energy ie Oil or potentially nuclear in the future.
5. New methods of doing things with less ecological damage. Like using insects to wipe out pests rather than pesticide.(interesting this was in a book in the 70s)
6. Improved methods for recycling waste
7. New methods of delivering the morning paper without carriers or waste. (Sounds like the internet)
8. New methods or equipment for transporting people and goods on land without wheels.

Some of these things just sounds like the authors ideas rather than things that have hundred bagged.

Invention is not enough for financial success many companies went bankrupt trying to develop the automobile(just read Engines that Move Markets that confirmed that) in the same vein many people lost money drilling for oil.

The author list of 100 baggers which includes 365 names that can be categorized in the following buckets as to how they 100 bagged

1. 100 bagged due to it being at a extremely depressed price cause by economic depression or specific panic or situation. (His example here is the great depression)
2. 100 bagged due to a change in the supply demand ratio for a commodity. Resulted in sharply higher commodity prices(an example for this one is a company finding a massive metal ore deposit and subsequently developing a mine, another example was the increase in the demand for coal after the depression for energy use which created a couple hundred baggers from coal companies as the price increased) this one is a bit random.
3. 100 bagged due to being heavily levered while the business expanded rapidly or inflation( an example for this one is when a company is so levered that the equity value is a very small percentage of total enterprise value, so if enterprise value doubles due to a positive surprise in the business the equity may increase 10 to 20 times that due to leverage) but that could kill you the other way too.
4. 100 bagged due to reinvesting earnings at a high return on invested capital for a long enough duration.(examples here are companies who have some sort of gate to protect their high rate of returns for a long duration of time like a patent, cost advantage, brand, etc)

For a stock to 100 bag between 15 to 40 years it will need to compound at a rate of return between 12% to 36%.

Chapter 20

In this chapter the author basically makes a case for home country bias. A case that Meb Faber would probably disapprove of.

Chapter 21

Why did the Rothschild buy when the streets were running with blood? Not because they liked red. Simply because when things are that bad they have to get better or nothing will matter. An example of this was the Cuban Missile Crisis which caused a panic in the stock market however if you though about it logically “why would you need money if the world was gonna end?”

Chapter 22

This chapter profiles what seven different stocks look like pre 100 bagging.

Masco Screw
– Traded since 1937
– From 1937 to 1971 an investment in Masco became a 1000 bagger however it wasn’t an easy hold
– it reached 5 dollars a share by 1946 only to lose 75% of its value in 3 years
– 1961 was the time where shares could have been brought to hundred bag
– Pre 1961 sales peaked at 9 million. In 1953 sales declined by half then recovered to 6.4 million by 1960.
So the company was flat for many years.
– One way to have found out that something was changing for Masco was ROIC which increased every year
from 1956 to 1960 from 1.7% to 15.1%
– For the next 10 years ROIC remain above 10% even going above 20% for a sustained period
– Also in 1961 shares were trading at a low of 3 times earnings
– In 1961 facet sales eclipsed screw products which is what brought success to the company
– Moral of the story for this 100 bagger was to realize the inflection of the business and buy when it was
cheap. PE ratio hit 38 times by 1971

The other six companies followed similar patterns. Each was priced at a very low earnings multiple usually below 10 at the beginning of there 100 bagger journey and by 1971 was trading at a much higher earnings multiple above 30. While also having a improvement in earnings and business performance.

Chapter 23

Even though there were hundreds of 100 baggers that the author pointed out few people were able to capture it. Probably due to overtrading. The author points out though that one way to make it easier to hold is to look at the business fundamentals such as earnings, sales and return on equity. If these things are moving up then the business should be held if they start to go down consistently than a case for selling can be made.

Chapter 26

Five important questions for any investment

1. How much will what I expect to happen increase the value of the property that I’m thinking of buying?
2. How long will this take?
3. What is the present worth of the increase I expect?
4. How much of the expected value increase is already in the price?
5. Is there enough difference between the value increase expected and the price i have to pay now and is there a margin of safety if I made an error?

Chapter 27

What makes a stock grow

1. Reinvesting earnings at a constant or rising ROIC above the average rate of 9%
2. investing borrowed money at more than the cost of that money
3. Acquiring other companies with stock at lower PE ratios than the stock used to acquire it
4. Increasing sales without having to increase invested capital or other means of efficiency
5. Discoveries of natural resources
6. New inventions or processes for filing peoples needs or doing old things better
7. Contracts to operate facilities for others
8. Rising price to earnings ratio

Summary and Review

To summarize, the book centers on the idea of finding “100-bagger” stocks—those that increase 100 times in value—by focusing on long-term investing. The key theme is that buying and holding strong, undervalued companies leads to significant wealth, while trying to time the market or trade frequently is less effective. The author highlights numerous examples of companies that achieved 100-bagger status, often through reinvesting earnings, leveraging innovations, or benefiting from shifts in supply and demand. Phelps stresses the importance of understanding business fundamentals, particularly return on invested capital (ROIC), and urges investors to recognize the value in unpopular or overlooked industries. The overall message is that patience, thoughtful stock selection, and the willingness to take calculated risks are essential to achieving extraordinary investment returns.

Overall I liked this book and would recommend it so I’d give it a Mokapu Capital 5/5 Rating. This book is in my top 10 list of investing books which once I have 10 or so of these types of articles I’ll be sure to put together.