100-Baggers are the holy grail of investing. These are stocks that return $100 for every $1 invested and they’re extremely rare. However, the secret to capturing your next 100-Bagger can be found in a presentation that Mohnish Pabrai did with the folks at Google earlier this year. The answer came when Pabrai was asked a unrelated question regarding whether he shorts stocks.
Here’s an except from that presentation:
I have never shorted a stock in my life. I will go to my grave without ever having shorted a stock. I would suggest you follow that same mental model. If the only thing you learn over here is to give up shorting, if you are a shorter, then I think that would be an hour well spent.
So it’s a great question, So each of us I think has a limited quota of 100-Baggers that will show up in a portfolio. I think I have had more than my quota of 100-Baggers that I was smart enough to buy but too dumb to hold. And there’s a long list. I used to own [Inaudible] Bank in ’94. I don’t know, it was 150 times. I probably got like 30% return after 5 years. Sold it. Blue Dart. There’s two 100-Baggers I did capture.
I owned Amazon in 2002 I think at $10 a share. I think it was 10 percent of our portfolio then and I got 40% in a few months and I was out. So what I have learned is that don’t sell the compounders when they get fully priced and don’t sell the compounders when they get overpriced. Only sell the compounders when it’s absolutely obvious to you that it’s egregiously priced.
The big money is in riding the compounders but you have to try to get in on them at a reasonable valuation and you have to be right on the fact that they are compounders. It’s a forgiving business, you can be wrong quite a few times and still be ok. I was able to at a point in time get to where Google was just at the edge of making it so we’ve made it, which is great, and that’s the key. You want to ride the compounders for long periods.