100x: 100 To 1 In The Stock Market by Chris Mayer, Daily Reckoning
That was the title of my presentation to the CFA Society of Columbus last Wednesday. I spoke about some of the things I’ve learned in studying stocks that return 100-fold, those coveted 100-baggers.
And it was in that meeting that a crazy coincidence occurred.
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In my presentation, I started by talking about Chuck Akre at Akre Capital Management. He’s a well-regarded investor. He ran FBR’s Focus Fund, which was a top-performing fund for many years. Then in 2009, he broke off on his own. His Akre Focus Fund has also done well, returning 17.5% annually, after fees, since inception.
Akre’s been in the securities business since 1968. He’s a wise bird. He’s also had a big impact on my investment thinking. In 2011, I read the transcript of a speech in which he talked about a book he read in 1972 and how it shaped his thinking.
That book was 100 to 1 in the Stock Market by Thomas Phelps. I read it soon after Akre’s speech, and it’s also had a big impact on my thinking.
So I opened my presentation with this anecdote, and I had a picture of Chuck Akre on my first slide. I didn’t know until I got there that someone from Akre Capital was going to speak after me.
Tom Saberhagen is a portfolio manager at Akre. And he told me that 100 to 1 in the Stock Market has long been one of Chuck’s favorite books on investing. Our respective presentations dovetailed very well. We had the same core message.
That message is that you should focus on how much a business earns on the money invested in it. The term of art is “return on capital.” And secondarily, you have to think about the ability of the firm to reinvest its cash flow at high rates of return.
Tom ran through a few examples in his speech. One of them was Apple.
Apple earns about 30% on its equity. That means for every $1 invested in Apple, it earns almost 30 cents. An investor who paid book value would, in theory, see a 30% return on his money.
But an investor can’t pay book today. The price today is 6 times book. So the implied return an investor gets is really 5%. That’s not so high.
See full article here.
100 to 1 in the Stock Market - Description
In 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities, Thomas Phelps discloses the secrets and strategies to increasing your wealth one hundredfold through buy-and-hold investing. Unlike the short-term trading trends that are popular today, Phelps’s highly logical, yet radical approach focuses on identifying compounding machines in public markets, buying their stocks, and holding these investments long term for at least ten years.
In this indispensable guide, Phelps analyzes what made the big companies of his day so profitable for the diligent, long-term investor. You will learn how to identify and invest in profitable business models without visible growth ceilings that will quickly increase your earnings.
Worth its weight in gold (and then some), 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities illuminates the way to the path of long-term wealth for you and your heirs. With this classic, yet highly relevant approach, you will pick companies wisely and watch your investments soar!
Thomas William Phelps (1902–1992) spent over 40 years in the investing world working as a private investor, columnist, analyst, and financial advisor. His illustrious investing career began just before the stock market crash in 1929 and lasted into the 1970s. In 1927, he began his career with The Wall Street Journal where he was a reporter, news editor, and chief. Beginning in 1936, he edited Barron’s National Financial Weekly. From 1949 to 1960, he served as an assistant to the chairman and manager of the economics department at Socony Mobil Oil. Following this venture, he was a partner in the investment firm of Scudder, Stevens & Clark until his retirement in 1970.
100 to 1 in the Stock Market - Review
Of all the books on investing that I’ve read over the years, 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities one was at once, the most pleasurable and most challenging to my own beliefs. Mr. Phelps spent over 40 years in and around Wall Street and the world of investing. His activities included being a private investor, columnist, analyst, author and financial advisor. His career spanned from just before the Crash of 1929 to the 70's.
In spite of the the rather glamorous title, 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities is actually about Buy and Hold investing. Yes, it is true that you could have made a million dollars by buying any of about 350 stocks he mentions if you had invested $10,000 and just sat back and watched it grow over time! Doesn’t sound that exciting, does it? However, I hope you didn’t miss the point that he mentions AT LEAST 350 opportunities to have done this! Most of the companies’ names will be quite familiar to most readers.
With the histories of many of these companies available, Mr. Phelps goes back in time to examine what it was about these companies that made their potential as great as it was. How can one begin to see what it takes for a company to do well? Well enough to drive its stock from $1.00 to $100.00 over a period of time? This is the heart of Mr. Phelps’ book. He comes up with common characteristics that show up in many of the stocks he uses as examples.
Now, what about his strategy of stock ownership? He says that the best way to preserve the wealth you accumulate from investing is to NOT SELL your stocks! Uncle Sam always wants a piece of the pie when you decide to cut it! Mr. Phelps says that no matter how long it takes, it’s better to pass on stocks to your heirs than it is to sell them too soon!!
“The reason,” he says, “that more people don’t make 10,000% on their money is that they don’t set their goals high enough!” He says that to sell a stock sooner than that is an admission that you have failed at this goal and haven’t done your homework properly! Move over Mr. Lynch! Who wants a Ten Bagger when we can shoot for a 100 Bagger!
Certainly in these times of trading stocks as frequently as heartbeats, his style seems almost radical. After all, who interviews the guy that just buys stocks? CNBC will just ignore you!
Mr. Phelps shows in one example, an investor could have seen the possibilities of a 10,000% return several times during a 40 year span! This same stock returned $100 for every $1 invested if held for 40 years, 36 years, 28 years, 20 years and also just 12 years! In other words, the stock price bounced around alot over the 40 year period. This offered the investor who was shrewd enough to have perceived the possibilities several chances to have caught that 10,000% ride! The company story just got stronger with each price cycle.
We work hard to find stocks that will give superior returns over time. We are willing to risk our money based upon our perception of the company’s future. Mr. Phelps develops very good selection skills. These same skills will benefit all long term investors.
– 100 Baggers Are Real Possibilities!, By T. Veale