Wealth Creation can be done through many ways. One of the most popular methods of wealth creating is stock market.
For those of you who love Fixed Deposits more than anything else when it comes to money then this article is not for you. In this article, we are talking about the book which is written by CHRISTOPHER MAYER titled 100 Baggers: Stocks That Return 100-To-1 and How to Find Them this book can be read over and over again.
It lays down the points that are crucial for stock picking and it aims at 100 Bagger. Yes! you got it right if Rs. 1000 are invested then expected return should be Rs. 1,00,000.
In this article, we are just going to discuss that. An outrageous quest backed by studying companies which have already been 100 Bagger stocks.
- 1 Stock That Return 100 Times The Invested Amount Also Known as Multibagger (Wealth Creation)
Stock That Return 100 Times The Invested Amount Also Known as Multibagger (Wealth Creation)
The search for 100 Bagger stock for wealth creation might look unreasonable at the outlook. But the author has studied stocks that have become 100Bagger. He has dug in into intricacies and quest for a pattern that is common among them.
The research is not carried out on all the stock but selectively screened stocks that have a huge market cap and exist for a certain period of time. All very small listed companies have been ignored for the study. In this book, he has emphasized what should be done and how it should be done.
- In this article, you would learn what are the main characteristics of the 100bagger.
- You don’t need an MBA degree or a finance degree to narrow down to the stock.
- Basic Number crunching along with some qualitative measures.
To understand from basic with current return and years required to achieve the 100 Bagger Return in any stock or underlying for that matter. If the return of the underlying stock is 14 then 100bagger would be achieved in 35years likewise if the return from the underlying is 36% then the 100bagger would be achieved in 15 years.
|Return||Years to 100-bagger|
COFFEE CAN PORTFOLIO
The concept of the coffee can was back there in the West. People would select things and put them in a coffee can and let them stay there for years together. The vital point here was what should be put in the coffee can.
He first wrote about the coffee-can idea in the fall of 1984 in the Journal of Portfolio Management. “The coffee can portfolio concept harkens back to the Old West when people put their valuable possessions in a coffee can and kept it under the mattress,” Kirby wrote. “The success of the program depended entirely on the wisdom and foresight used to select the objects to be placed in the coffee can, to begin with.”
The coffee can portfolio is a foolproof way to accumulate wealth.
- The biggest challenge is to hold on to this portfolio. In today day when the results are discussed on Quater to Quarter basis and Year to Year basis this makes the task tougher.
- This is something similar to giving a child his favorite chocolate and asking him not to consume the same.
- Few of the classic examples of this is Apple and Berkshire Hathaway which during the downturn had fallen as much as 60% only to rise back bigger and better.
- This Indian Stock has grown from Rs. 10,000 to Rs. 500 Crores perfect example of how stock market rewards coffee can portfolio.
STUDY OF 100BAGGER
The Indian Stock Market is majorly constituted with Micro Cap by number. But by value blue-chip companies would form the major portion of the stock market. Opportunities like above come in small caps and micro caps. By number at least 40% or more of the stock form micro cap. A micro cap can grow 10 to 20 times and still remain small. 100 baggerdom has nothing to do with finance or stock research.
Stocks which were once in the fray and have lost the steam. This something we have discussed in how to create a winning trading plan the difference between breakout and breakthroughs.
More importantly, the stock should have growing earning on a consist basis. Expansion of the PE Ratio is the Key. Which coincides with accelerating growth earnings.
Important points that contribute to baggerdom.
- S—Size is small.
- Q—Quality is high for both business and management.
- G—Growth in earnings is high.
- L—Longevity in both Q and G
- P—Price is favorable for good returns
RECIPE TO 100BAGGER STOCK
Looking out for companies with High and Lasting Return on Equity is the key.
Even an expensively owned stock with such credentials in long-term give a high return and end up being cheap.
If a business earns 18% on capital over 20 or 30 years, even if you
pay an expensive looking price, you’ll end up with a fine result.
— Charlie Munger
Stocks should have a sustainable competitive advantage. The small companies with very less outreach with sustainable competitive advantage can grow and outperform the market in the long run. Hypothetically if a concept store or a retail store with very limited store during the IPO but with a huge potential and model replication can grow across India. These are the stocks that carry the potential to become 100baggers in the long run.
Very few people actually look out for stock that has huge opportunity to reinvest the earnings to generate more growth an opportunity. A stock which is consistently paying a majority of earning as dividends is the stock that is earning but they are unable to deploy the earnings in the future growth of the company.
OWNER OPERATED / RADICAL CEO
Investing in the company along with those who own a lot of stock you are buying and are also involved in the company’s functioning have an added advantage. Most of the owner-operated stocks perform consistently better than it’s peers.
People with their own money in the companies relatively perform better when compared with professional hired or top guns hired to run the game. This is because of better decision making which is otherwise rare to find. Another reason an important one is when the owner-operator has a majority stake the decision making is faster and promptly executed.
If the top guns of the company are recruited they would earn from stock options and not the common equity. In case of the owner-operator, you are entrusting with the company owner in which he owns common equity and this ensures that even you would earn from the same common equity, unlike stock options.
Many a time the company’s founder would have brought the company to such a level right from the scratch. Also, chances are that the owner-operator is a billionaire himself who is starting a new company different from his earlier investments. It is a qualitative factor which leaves no financial impression.
At time occasionally companies with CEO’s who have a radical thinking of the company which takes can also bring a turnaround. Being a protective towards the common investor’s wealth creation is a good attribute to look out for in such a case.
OTHER IMPORTANT ASPECTS
Buying stock is like owning a business. Business has their own cycles of ups and downs. If you are only chasing returns and the quality of the business you own or the stock then you are ought to lose the opportunity. For example, if some who had invested in Berkshire Hathway sold all his holding when the stock lost around 60% in the stock market crash could have a very high opportunity cost and lower returns combined together.
A good quality of business can face downturn too which is natural. One should be able to differentiate if the poor performance of the company is because of the macro levels or company related micro level.
Investing in stock is a boring business.
People are dying of boredom.
— Raoul Vaneigem
Activity is very important to them. It’s more of behavioral finance than fundamental or performance-based decision making. An investor is not to be blamed humans are trained to gain only out of the activity and any inactivity over a long period of time can contribute to boredom which can lead to wrong decision making.
Broker or stock operator based scams are quite prevalent even today. Company with no fundamental background or management can reach peaks during the bull run. This is the scenario when more money is running behind fewer stocks.
The stock market is a function of greed and fear. In such cases, the greed overtakes over fear.
Scams could arise from anywhere and the reason could be the least expected; management, board members, lawyers, auditors, investment banks and even market research firms.
A very good business and company can consists of both good and bad management.
Cloud judgment is an important factor here. Board and management could be incompetent and this could be the reason for cloud decision making. Perks of management and board members at times could be a hindrance to their performance. They might not think of the common stockholder which otherwise should be their priority.
To Read the Book 100Bagger BuyNow
Entire discussion to find the next 100bagger has been around qualitative than quantitative. If quantitative was so important than algo or artificial intelligence could have succeeded in stock picking skills.
Don’t limit yourself that finding a 100bagger stock is the work of a finance background and qualified professional.
A good business in your own domain can be found out with certain basic finance skills.
Pro Tip: You would be requiring a very good stock screener to get down to your next stock. A good stock screener is as good as you are.
Come back here and tell us about the before-and-after. I bet you’ll have something to say! If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank you!