Raamdeo Agrawal’s Motilal Oswal 19th annual wealth creation study from 2009 to 2014; titled, “100x – The Power Of Growth In Wealth Creation.”

H/T @ChesapeakeCap

Theme Discussion Points

  • 100x: What & Why
  • 100x: The Indian experience (1994-2014)
  • 100x: Alchemy of SQGLP
  • 100x: How to apply for the future

Powerful mantra for big Wealth Creation

To make money in stocks you must have –

  • the vision to see them
  • the courage to buy them and
  • the patience to hold them.

Patience is the rarest of the three. – Thomas Phelps in 100 to 1 In The Stock Market

What is 100x?

  • “100x” refers to stock prices rising 100-fold over time
  • The exact number “100” is not so important
  • What is important is –
    100x opens the mind to the power of long-term compounding in equity investing

100x & Compounding

Understanding the Time-Rate combination for 100x

Wealth Creation

Why 100x?

Warren Buffett on investing and purchasing power “Investing is often described as the process of laying out money now in the expectation of receiving more money in the future.

At Berkshire Hathaway we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power in the future – net of taxes on nominal gains and inflation.”

100x enables accumulation of massive purchasing power

Wealth Creation

100x – The Indian Experience

Indian benchmark indices rise 100x in 30 years

Wealth Creation

Two kinds of 100x stocks in last 20 years (1994-2014):

  1. TRANSITORY
    – mainly fads and cyclicals which fizzled out after rising 100x
    – Satyam Computer, SSI, Unitech, Jai Corp, Mercator, etc
  2. ENDURING
    – meaningful size and scale of operations
    – saw stock prices rise 100x or more during the period
    – and most importantly, maintained their 100x status even as of March 2014 (financial year-end)

47 enduring 100x stocks over 1994-2014

Wealth Creation

100x in 12 years (47% CAGR); interim returns healthy

Wealth Creation

100x – Alchemy of SQGLP

S – Size
Q – Quality
G – Growth
L – Longevity
P – Price

S – Size

Small & relatively unknown (at the time of purchase)

  • Small, both in Mkt Cap and Sales
    – 47 stocks: Avg revenue Rs 300 cr, mcap Rs 250 cr
  • Relatively unknown
    – low institutional holding, analyst coverage, volumes

Q – Quality

High quality business X High quality management

  • Quality business
    – Large profit pool
    – Value Migration (IT, Pharma, Private banking)
    – Niche / Strategic opportunity (Eicher, GPPL)
    – Dominant market share (Pidilite, United Spirits)
    – Economic Moat (Bosch)
    – Favourable demand-supply (especially for commodities)
  • Quality management
    – Integrity
    – Competence
    – Growth mindset

G – Growth

Earnings Growth X Valuation Growth

Wealth Creation

Quality v/s Growth

Wealth Creation

L – Longevity

Longevity of quality & Longevity of growth

  • Extend CAP (Competitive Advantage Period)
  • Delay mean reversion of growth

Wealth Creation

P – Price

Favorable valuation

  • Valuation growth lowers burden on Earnings growth for 100x
  • Low P/E preferable; but not the only criterion

In the Bible, it says that love covers a multitude of sins. Well, in the investing field, price covers a multitude of mistakes. For human beings, there is no substitute for love. For investing there is no substitute for paying the right price – absolutely none. — Van Den Berg, Outstanding Investor Digest, April 2004

See full slides below.