100 Baggers

I’ve read many books on investing, and after reading about a dozen in this genre, the content grows repetitive and even tiresome. Periodically, a new title will rise from the crowd in this busy book category. That’s the case for 100 Baggers by Chris Mayer, published in 2015. In addition to a catchy title, the book hits a home run with its sound business advice and a solid framework that’s even relevant for CEOs, CFOs, and COOs.

Episode Highlights

Riffing on investment books, including those by Peter Lynch
The reason Tractor Supply became a 100 Bagger
Thomas Phelps and 100 to 1 in the Stock Market
These are no penny stocks
There is no magic formula
A book for CEOs too
The SQGLP framework
The Coffee Can Portfolio
The reluctant seller
Cash flow vs earnings (an accounting construction)
Overcoming mean reversion – moats and goats
Seeking owner-operators
Employee ownership participation at Brown & Brown Insurance
Kelly’s formula on edge and odds
Book pairings for 100 Baggers

Start with acorns, wind up with oak trees. As a general rule, I suggest focusing on companies with market caps of less than $1 billion.
100 Baggers: Stocks That Return 100-To-1 and How to Find Them (Kindle Location 2688 and 2695)

The SQGLP Framework

I enjoyed reading about Chris’ SQGLP framework for evaluating companies. Remember, he says, “No magic formula for success.” Yet, he uses a mental model as a filtering mechanism before pulling the trigger on a purchase. Here is what those five letters mean:

S – size
Q – quality
G – growth
L – longevity
P – price

This simple model reminds me of the message by Carolyn Dewar, one of the co-authors of CEO Excellence. Accordingly, this is not just a book for investors. CEOs and CFOs can gain many valuable nuggets as this book addresses the core of great businesses that stand the test of time–wars, inflation, recessions, and regulatory mazes to be navigated.

Should you read this book in a club setting with peers or colleagues, here are five questions to discuss that are inspired by the SQGLP framework.

Presumably, your business is no longer an acorn. How has it grown to be the oak tree it is today?
What are the top qualities of the management team? What are the gaps?
What does your crystal ball reveal in your business and industry for the next ten years?
What are your company’s moats and gates?
What is the rate of return for the employees who work in the business? This is not a trick question. Why do employees stick around in the company? What’s in it for them now and the long haul for those who stay?

Books Mentioned

100 to 1 in the Stock Market by Thomas Phelps
One Up on Wall Street and Beating the Street by Peter Lynch
Quality Investing by Eide, Cunningham, and Hargreaves
The Creative Act by Rubin
Pragmatism by William James
Philosophy as Poetry
I Am That by Maharaj

To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” According to Phelps, “patience is the rarest of the three.”
100 Baggers: Stocks That Return 100-To-1 and How to Find Them

Another Chris Mayer Book I’m Enjoying

I’m only two chapters into Chris’ 2021 book, How Do You Know? A Guide to Clear Thinking About Wall Street, Investing, and Life.

Chris uses a similar approach in this book as he did with 100 Baggers–he found a topic where limited content exists and provides his take on key concepts in a very readable text that reads fast.

By the end of the first chapter, you know who Alfred Korzybski is: the father of general semantics. I’m calling this a book on analytical thinking, and as I was reading the section on the map is not the territory, my first thought was that every financial modeler and FP&A professional needs to read and reread this section.

Our maps are reproductions of certain details. They are representations, but they can never be the things they represent.
A Guide to Clear Thinking About Wall Street, Investing, and Life – page 35 (Kindle version)