100 Baggers

Mayer studies stocks that returned one hundred times the purchase price, building on Thomas Phelps' 1972 book One Hundred to One in the Stock Market, and identifies what they had in common. His sample covers three hundred and sixty-five companies from 1962 to 2014 that achieved this return.

The central arithmetic is that a hundredfold return requires either enormous earnings growth, a large expansion in the multiple applied to those earnings, or both, and that the two combining is what he calls the twin engine. He finds that the median time to a hundredfold return was about twenty-six years, which establishes the holding period the strategy requires.

The characteristics he identifies include small size at purchase, since a large company cannot grow a hundredfold; high returns on invested capital sustained over long periods, which is the mathematical requirement for compounding; the ability to reinvest earnings at those returns, since a high return business that cannot reinvest returns cash instead; owner-operators with substantial personal holdings; and low or reasonable purchase multiples.

His most emphasised practical point is what he calls the coffee can approach, meaning buying and then not selling, on the argument that the hundredfold returns are only available to holders and that no investor will hold through the drawdowns unless they commit in advance. The sample is selected entirely on outcome, which means the characteristics cannot distinguish companies that succeeded from companies that shared the traits and failed. The holding period required is longer than most investors will accept. The reinvestment argument is the analytically strongest part.

Co-founder and portfolio manager, Woodlock House Family Capital 2018-present; previously newsletter writer at Agora Financial

100 Baggers turned Thomas Phelps's buy-and-hold arithmetic into a working screen and has outlived its publication cycle as a reference for long-hold investors.

Woodlock House Family Capital, Agora Financial