Wolf Money(book recommendation)
“100 baggers” stocks that return 100-1 and how to find them by Christopher Mayer teaches how everyone can spot a 100 baggers. You are right, not 10 baggers, not even 50 baggers but a 100 baggers!!. To put it in simplistic term, $10,000 invested in a 100 baggers will turn that $10,000 into $1,000,000 in N years. Of course timing is always unknown. Some stocks turn 100 baggers within a decade while other turn in a 100 baggers half a century later. The author emphasised using the “Coffee Can method” which is independent from market condition, favour of the day, whether on trend or unfashionable industry. What exactly is the Coffee Can method? The method is similar to our version of storing valuable or monies in “milo tin” under the bed during our grandpa era where banking was less reliable and less frequently used. The concept is by choosing a group of stocks which had great potential and invest them in equal portion. For e.g 20k for 10 stocks with each stocks getting a 2k allocation. The author also suggest locking that coffee can away from view. In his opinion, by having bite size investment of insignificant amount one can easily be less edgy when the market is experiencing volatility. There were few important criteria to achieve that 100 baggers stocks return.
1.) Stock must exhibit constant revenue and earning growth.
2.) Display certain competitive advantages or economic moats.
3.) High ownership of the company by owner operators.
4.) Company constantly reinvest their money into the company by doing share buy backs.
5.) Generation of good cash flow.
6.) Following the smart money into the company with notion if it is good for Warren Buffett or Carl Icahn then it must be good enough for everyone.
7.) Avoid getting bored with your stocks as holding long term position requires a fair amount of patience and inactivity.
8.) Ignore the doomsday forecasters. Market goes up and down, no one can predict with 100 percent certainty.
9.) Small cap stocks had more potential in turning 100 baggers
10.) Avoid using high leverage, Ben Graham was a victim of high leverage during the Great Depression. He loss 70 percent of his capital from 1929-1932.
11.) There is an element of luck.
12.) Dare to be a contrarian.
More than half the stocks in that 10 stocks “coffee can” portfolio will go bust, a couple of them will give you flat or no return, one or two will give you extraordinary return in the range of 50x to 200x.
There are plenty of things to absorb in the book. It give a compelling argument why fundamental and long term investing works. To be fair, the 100 bags argument works well in US market or other market with good depth of world beating companies to invest. It might be difficult to apply it in Singapore where only once in a blue blue moon you have a 100 baggers, even a 10 baggers is a rare find in our market. The book goes onto Lone Wolf recommendation for its entertaining example of 100 baggers.
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