100-baggers (Christopher Mayer)

This book gives advice on identifying companies whose stock will grow ~100x. It doesn't have a very good structure, just gives a bunch of assorted advice. The key point is that the easiest way to get high returns is from fast (ideally accelerating) earnings potential growth that is accompanied by mutiple expansion. To find companies that can do it, look for:

• Small companies (because otherwise it's harder to grow),
• With high ROE, ROIC.
• Economic moat (otherwise competition eats your margin):
  • Strong brand,
  • Network effects,
  • High switching costs,
  • Other stable ROE advantage.
• Owner operators, to get incentive alignment,
• Best CEOs and strong management teams:
  • Read earning call transcripts, several quarters, see how it develops.
  • How does the language change?
  • Are pointed questions being answered? Are questions too positive?
• Low P/E, then it can still grow,
• Buy and wait, it takes time to get 100x returns. Don't sell unless the company has lost the rapid growth properties.

Some features to watch out for:

• Important problem with a new solution.
• Relentless focus on the long term.

Additional tips:

• Kelly's formula: bet% = edge / odds (they recommend to divide by 2).
  • Mohnish Pabrai says that Kelly's formula doesn't apply to investing. I agree.
• Don't believe the institutional analysts, they are not on your side. For example earnings estimates have incentives that go against accuracy.
• Best time to buy is after a market crash.

More tips from Chris Mayer, not in the book:

• Don't check your portfolio often. Prices flashing cause you to act but most likely you want to just hodl.