Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
7investing Lead Advisor Steve Symington talks with "100 Baggers" author Woodlock House co-founder Chris Mayer about finding stocks that can turn $10,000 into $1 million.
August 24, 2020 – By Simon Erickson
Finding a stock that returns 100 times your initial investment might sound like an improbable dream for most investors. After all, who would think that anyone could possibly turn $10,000 into $1 million with any reasonable degree of certainty?
In fact, there are hundreds of stocks that have done exactly that in recent years. And anyone can find them if they know what to look for.
In his book, “100 Baggers: Stocks That Return 100-to-1 and How To Find Them,” author, portfolio manager, and Woodlock House Family Capital co-founder Chris Mayer focuses on the characteristics shared by the remarkable companies underlying these stocks, and the challenges investors face buying and to realize life-changing returns.
This week 7investing Lead Advisor Steve Symington sat down to down to talk with Chris about his own portfolio-management style, the most common traits of 100-bagger stocks, and how anyone can find them with patience and a long-term mindset.
Stocks discussed include: Teledyne (NYSE: TDY), Monster Beverage (NASDAQ: MNST), Starbucks (NASDAQ: SUBX), Amazon.com (NASDAQ: AMZN), Square (NYSE: SQ), Apple (NASDAQ: AAPL), Coca-Cola (NYSE: KO), AutoZone (NYSE: AZO), Constellation Software (TSE: CFU), Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), Pfizer (NYSE: PFE), Intuit (NASDAQ: INTU), NVIDIA (NASDAQ: NVDA), McDonald’s (NYSE: MCD)
00:01 – Chris Mayer introduction, Woodlock House overview
04:40 – The “everyman’s approach to huge profits in stocks”
07:07 – The “twin engines” of growth (earnings/sales growth and higher multiple)
10:40 – How Stock buybacks accelerate returns
15:27 – Qualitative vs. quantitative analysis, ignoring macroecnomic news
23:13 – Invest like an art owner
24:34 – The coffee can approach
38:42 – The infamous “how many 100-baggers have you found?” question
41:28 – Investing in international markets today
Steve Symington: Greetings fellow investors. I’m Steve Symington, Lead Advisor at 7investing, where it’s our mission to empower you to invest in your future. We do that by providing monthly stock recommendations to our premium members and educational content that’s freely available to anyone. Today, you’re in for a special treat. I’m joined by Chris Mayer, author of “100 Baggers: Stocks That Return 100-to-1 and How to Find Them,” and currently a portfolio manager and the co-founder of Woodlock House. Chris, welcome to the show.
Chris Mayer: Steve, thank you. Good to be on with you.
Steve Symington: So, can you tell us a little bit more about what keeps you busy these days?
Chris Mayer: Yeah. So I started a fund called Woodlock House, and we launched in January 2019. It was backed by a family office that I worked with before, the Bonner family. Owns Agora and a variety of publishing enterprises and they were my publishers when I wrote my newsletter before that for 15 years so ever since that I have been running Woodlock House. And it’s basically er: a concentrated portfolio. We aim to own about 10 to 12 stocks that we can own for the long haul. And yeah, that’s what I’ve been doing.
Steve Symington: Okay so 10 to 12 stocks. Some people…I mean, that is definitely concentrated. And kind of the genesis, I guess of this podcast episode and having you on was your book “100 Baggers.” You guys can find this online pretty easily. And I’ve been seeing people share it for so long, I finally bought it and actually ended up reading it in two days. And about 150 pages of it on the second day.
Chris Mayer: Oh yeah, I got caught you on Twitter. You were camping. That’s how I “met” you, so to speak.
Steve Symington: Yes, it was a fantastic book, you know,
Chris Mayer: Thank you.
Steve Symington: My wife looked over and she’s like, “Well, that looks kind of dry!”
Chris Mayer: *laughs*
Steve Symington: And I’m like, Well, no, this is one of the better books I’ve read in the last five years! And and it’s incredibly quotable. And early on you cite some wisdom from Thomas Phelps when he says “in order to make money in stocks, you need to have the vision to see them the courage to buy them, and the patience to hold them.” Noting that patience is the rarest of the three. Now how does that wisdom play into your current portfolio management style.
Chris Mayer: Yes. Well, I mean when Phelps, you know, when he wrote that it was in an early chapter where he’s sort of, he’s telling you stories little anecdotes of people who have had stocks return 100 to one. And he’s trying to impress upon you, one that it’s possible, because the people he cites are not great investors. They’re just ordinary people and the people he’s worked with. Then he was editor of The Wall Street Journal for a time. And the secret to their success, you might say, is that they bought the stocks and they left them alone. And so that I think the big takeaway from Phelps, and that quote is that you know, first off, it’s possible. So you know you aim big and if you don’t get there, you know, don’t worry about it. I mean, a lot of people get very literal with me and they’ll be you know what? You know, they want to try to get that hundred to one, you know, in the next five years. They want to be able to envision how a stock gets there, but that’s not really the key. You know, the key is to figure out kind of the mechanics of what creates 100 baggers, which is what what I spend my time in the book doing and what Phelps does in his book. And then once you find those traits, really, to let the power of compounding do its work and leave those things alone so that, what you cited there is sort of the crux or it’s at the heart of what I’m trying to do with Woodlock House as well, which is just to find, you know, a dozen or so compounders that I could leave alone. I hate using that term compounders because it’s so abused bu find these stocks that have these sorts of qualities that Phelps, and I talked about in our books and then I can sit on and hold.
Steve Symington: Yeah, and that’s I think the key is just holding and that is so hard for everybody to do. I think that’s the biggest thing is, you know, we get a lot of questions like, “Hey, should I sell this stock? It fell 3%” And I’m like, oh, goodness.
Chris Mayer: A lot of education involved there.
Steve Symington: Yeah, pump the brakes. And so I actually love that the book focuses on what you call an “everyman’s approach to huge profits in stocks. Can you elaborate on that? The everyman’s approach?
Chris Mayer: Well, I think one of the differentiating factors in this is that while it is hard – That one key factor that you have pointed to patience, which is, I agree that is really the hardest part of it. It’s also the most critical ingredient, probably, above all, is that that’s something everybody can do even though it’s hard. And in my mind when you know when you first read that I was thinking like, I remember when I was younger, learning about investing and you read those books like the market wizards books you know Jack Schwager wrote about these guys doing these incredible things and making this huge sums of money, but they’re often doing things like trading futures or doing, you know, things that ordinary people just can’t do. Yeah, and I think that’s the part of the beauty of the 100-Baggers approach is that it mixes things in there that everyday people can do. They can identify good businesses that should be around over the next decade and sit on them.
Steve Symington: Yeah, and there was one quote after you introduce the everyman’s approach, and you said there’s “lots of good ways to make money in the markets, just as there are different ways to make a really good pizza. Nonetheless, there’s something to be said for really good pizza that almost anyone can make with the right ingredients.” And that kind of hits the nail on the head for me. Right. Because so many people watch movies like The Big Short and be like, “Wow! There’s so much money,” and they sort of dream that way. But you can do that. And, you know, and we’re talking about 100 Baggers. That’s stocks that return 100 to one, you know, for perspective, this is a stock that you could put, say $10,000 into and turn it into a million dollars.
Chris Mayer: Yeah.
Steve Symington: You know, and it’s something that takes for anyone listening, a long time, sometimes. You know, anywhere from 10 to 30 years you know when you’re looking at the measurements that you’re using in that book. But with that kind of patience, that’s when you start to see truly ridiculous things start to happen in your portfolio.
Now you also mention the concept of the “twin engines” as it pertains to finding 100 baggers so if I understand it right, you need growth in both the size of the business and the multiple the market puts on the stock. Can you elaborate on that thought?
Chris Mayer: Yeah, so when you really get these stocks that really take off, often they had this double combination. So let’s just say for simplicity sake you if you buy a stock at 20 times earnings and you know the earnings over the next five years double, and it keeps its multiple at 20 times you’ve doubled your money over five years, which is a perfectly fine outcome we’d all be happy with. But if you can find something that goes from 20 to, you know, 40 and then you’ve had a doubling of earnings, but then you’ve also got a double in the multiple, now you know your $2 earnings is worth you know 80 so you’ve got you’ve made, what, four times your money. Right. Instead of double, so I mean the math gets exponentially large if you can find something like that. And of course, that’s the really difficult part and I wouldn’t pay too much attention, necessarily, in trying…because what people will do is then they’ll be afraid to pay up for a good businesses. And then I have lots of anecdotes, where people did things like pass on Starbucks at 40 times earnings and then it’s up 100X since they said no. And we’ve all had those stories. So you don’t want to lose the forest for the trees here, but the truth is that when you get both those things working for you can really make some phenomenal returns.
Steve Symington: Yeah, and I think Austin actually had a good little thread after Square released earnings and it’s one of those things where so many stocks just look expensive but then their multiples get even even wilder and eventually it might settle, but the market rewards them and that’s kind of that ideal situation, having that that twin engine kind of working for you.
Chris Mayer: And sometimes when that happens the business gets better. So if you find businesses where the margins are getting better, you know, that tends to be something then where the multiple will also go up. And so if you can kind of, peek around corners or find companies where their margins are actually kind of increasing as they get bigger because of some network effects because of economies of scale, that’s we are more likely to find that re-rating.
Steve Symington: Or some new product. Yeah Amazon pops right into my head. You know, with AWS. Right after their core retail stuff.
Chris Mayer: Or Apple. You know, it’s created several different, new products they didn’t have at all, starting with the iPod.
Steve Symington: Yeah, so who would have been able to, you know, predict that? I don’t know, but that’s kind of part of the challenge. I like finding businesses with optionality that way.
So on a different vein. We’ve spoken at length at 7investing on the topic of capital allocation. And Simon and I actually dedicated a recent podcast episode to the different ways companies can approach it. And we listed six different ways, I think you mentioned five different ways, but one of them is kind of a “nothing” way, but you know you can do nothing. Right. Stockpile cash, you can invest in growth. You can make acquisitions. You can repurchase shares. You can pay down debt or you can pay a dividend. But I was kind of surprised. Actually, I turned the page. And I was like, “Oh, an entire chapter dedicated to the topic of stock buybacks on accelerating returns!” Can you offer kind of some thoughts on the way you think about buybacks you know when they’re the best way to handle money, and when maybe they should be avoided?
Chris Mayer: Right, well, you know, I felt I had to include that, because there were these instances of stocks where the underlying business didn’t really grow that much, but they still were fantastic. So obviously one example everybody thinks of is Teledyne with Henry Singleton who bought back great gobs of stock and the stock did very well. The one I focus on in the book, one example I used was AutoZone which the underlying business didn’t grow much at all, but they retired 75% of their stock. And so the returns were very good on that stock. So I felt I had to include that, and kind of account for those. I know buybacks are a little bit controversial, even among super intelligent capital allocators i mean i think example Mark Leonard at Constellation Software, who … his opinion of buybacks is it’s almost like insider information and you’re taking it taking advantage of shareholders who don’t know as much as you do and I think he even uses that term, he’s turning, turning shareholders into prey. That’s one of the more extreme ones, but I mean I think just rationally. The way to think about a buyback is that it is another avenue for capital and there are times when your business repurchasing, or basically buying your own business is maybe the best use of that capital and when you do that over time, reducing that per share denominator, that’s going to accelerate the returns and free cash flow per share, and all those other metrics that we pay attention to. So if you find companies that do it well, it’s a nice thing to have.
Steve Symington: Yeah, and one, for anyone unfamiliar with buybacks if you’re listening, essentially they’re buying these shares, they’re retiring them and then making remaining shares worth more on a per-share basis for the remaining shareholders. So again, you find that the people who are winning are the people who are just hanging on and enjoying this. They’ve taken those shares off the market and…
Chris Mayer: And as long as the company continues to grow and increase in value over time that works out.
Steve Symington: Yeah, and I think one one big example that surprised me. Even when Simon and I were talking about it on our capital allocation podcast was Starbucks. You know the amount of shares that they bought back, it’s just staggering. We’ll have to refer back to those numbers, and we even saw Berkshire Hathaway start repurchasing its own shares recently. But when it happens at scale, with something like AutoZone when you talk about reducing their share count by 75% is what you said? That’s stunning. You know, you don’t think… it kind of sneaks up on you after a few years, like, wait, how much have they dedicated to this?
Chris Mayer: Yeah. Chris Mayer: I mean, there’s some companies out there just, I mean, Charlie Munger uses the term cannibals. Just, you know, consistently grind away their shares and even if there’s only a few percentage points a year, you know, over a decade suddenly you’ve retired a third or 40% of your shares really.
Steve Symington: You couple that with even modest growth, you know, in the actual business and it can be an interesting way to compound and accelerate your returns.
Chris Mayer: Conversely, if it’s done very poorly, it can destroy capital.
Steve Symington: Well yeah! What if your stock is expensive?
Chris Mayer: I think, you know, Coca Cola was infamous for doing buybacks when their stock was like 50 times earnings and they were getting, you know, basically 2% earnings yield on that money and it didn’t work out. And I likewise if companies do things where they borrow a lot of money to buy back stock. Those generally don’t work out. You want it to come from internally generated cash.
Steve Symington: That’s a fantastic point. There are times when it’s not. That’s, I think, more companies get a lot of flack for actually repurchasing shares, because they view it as a vote of confidence in the company, but that’s not always…maybe a false vote of confidence.
Chris Mayer: That’s right. So there’s better use for that capital.
Steve Symington: What about the role – moving on to a different topic here – of qualitative versus quantitative investing on finding potential 100 baggers? Now, you kind of mentioned, with qualitative investing you shouldn’t really care so much like what the Federal Reserve is doing, which I think, you know, even though you wrote this book a few years ago. It’s particularly prescient. You look at today’s environment. It’s a wild market we’re living in right now. Qualitative versus quantitative. What do you think, on that note?
Chris Mayer: Yeah. Well, when I think qualitative I think of all those things obviously that aren’t in numbers. So they would be things like, do you trust the people running the company? What’s the culture like? This is something I’ve spent more time thinking about this year and the last year. Sometimes there is a culture that comes through and you can see it in the annual letters. You can see it in transcripts when management talks.
There’s a focus on running the business, doing the right thing for customers, adding value for people and creating win-wins. I know that’s a cliche, but being shareholder friendly. So versus management teams that are wildly overpaid where the alignment is not clearly not there, where they’re being rewarded for doing something like growing sales, which doesn’t necessarily increase shareholder value. Or whether their product is sort of questionable, whether they’re really taking advantage of their customers or not. There are other ways to think about culture, but I think those qualitative factors are important. Then some of the other things you were talking about with the Fed. Yeah, I mean, I kind of think of those as kind of more macro questions and you know, sometimes they can be important as well. I mean, we’re going through this pandemic and you couldn’t just completely ignore that, because it did fundamentally change how businesses are run. And some businesses are going to be incredibly stressed by this. And it’s not something that’s just going to last for one month or a few quarters or a year and be done, it might be something that is around for a long time. So you have to adjust. I would say, most of the stuff that you read about the economy and forecasts and what GDP did and what the latest unemployment number and all that stuff you could probably safely ignore. And you look at these past 100-baggers. You can see how those kinds of concerns, they didn’t really matter. You know, they just plow through all these things over a period of a decade. Doesn’t matter, and even, you could just think in your own experience. Try to think about what was important a year ago. What were you thinking a year ago this week? What was the thing of the day that seemed so important back then, whatever economic data point it is. And it’s not even important now, so…That’s why I think you get a bigger bang for your buck, if you pay more attention to just what’s going on with your particular business.
Steve Symington: Yeah, I mean, look back at the beginning of this year. And I remember the Australia wildfires.
Chris Mayer: Yeah. Yeah! It’s funny you mentioned that example because I was talking to an Australian friend of mine, and he said that, he goes, “You know, if you could roll back the Australian wildfires were like a couple countries on fire.” That was the big news. Six months later, nobody’s talking about that!
Steve Symington: It’s hard to believe it’s only been that, but yeah, I think it helps put it into perspective. You know what businesses have been able to just plow through in the process and does it matter over the long term, for businesses that are really built to last?
You mentioned, I think, charts. Do you buy a stock, or don’t buy a stock because you don’t like the chart? Will it matter next month?
Chris Mayer: Right.
Steve Symington: You know, so that’s that’s kind of hard. I mean, you know, if you have a 50% swing or something that drastically changes the multiple at which you’re buying a stock, then, then maybe, but I’m not. You know, I don’t focus any time on technical patterns and those sorts of things, but…
Chris Mayer: Right. Right. And that’s a very important point because with 100 baggers. I mean, they all suffered drawdowns to varying degrees. And I spent quite a bit of time in the book going through a number of examples where, you know, you have these big massive severe drawdowns. But you don’t even have to go that far, you can just think of, you know, good stocks that have 15%, 20% drawdowns. It’s, so what? But at the time it can seem like a crisis moment, what do I do? The stock is down the 20% from where it was last quarter. And over a long period of time, those don’t really matter and you know we look at some of the patterns of some of those winners. The other thing I think it’s not only drawdowns but it just can be the sheer boredom of it. I mean, I know I had some examples of stocks that just went nowhere for years. My favorite example is Berkshire Hathaway which there was a seven year stretch where it went nowhere. And yet, that was the best-performing stock in the whole study. But think about it. I mean you and I know I’m sure our listeners know they’re involved in this thing, looking at stocks every day, to hold onto something for seven years and go nowhere is an eternity.
Steve Symington: Yeah, it is. It’s a long time. Well, and even now, you know, I have people kind of looking back at Berkshire over the last decade and comparing it to the S&P 500 and being like, Oh, it’s underperformed so badly and I’m not particularly concerned with stuff like that, you know. And anymore, to be honest, when I have a stock that drops 20%, 30%, 40%, I barely even blink, because for me, it’s a matter of trusting my homework, you know, trusting the thesis and not just blindly trusting if it drops like that there might be a reason. But go back, make sure it’s still valid. Yeah. Consider adding to that position, at a certain point, adding to a winner.
Chris Mayer: Right.
Steve Symington: But yeah, it’s stressful, I think. And that’s maybe the hardest part is weathering those kinds of periods.
Chris Mayer: I think Phelps had one interesting thing I like and he does in his book, he has these presentations, where they’ll take a company like I think it was Pfizer, he used. And he has a 20 year table where he shows you earnings per share, sales per share, and dividend per share, and I think return on equity. And the point is that this is a company that is very stable every year. You are always something like 16% or 15% or 17%, it’s bop bop bop bop…And earnings are going up, every once a while there’s a pause where it doesn’t. But then it goes back up. But his point is if you just looked at this table. And this was like 100-bagger over those 20 years. If we just looked at that table. Would there be any reason for you to sell a stock?
Of course, you know, the answer is no. But if you look at the stock chart. You know what happened during that whole time, it was an up-and-down ride and there was lots of moments where investors were probably scared of whatever thing happened in the moment. So, I mean, you’re exactly right you focus on that business and you go back and check, you try and make sure your original thesis is still valid, the business is still what you thought it was. But you know if there’s no business reason to sell, you’re almost always better off just leaving it alone.
Steve Symington: Yeah, I saw a tweet, the other day, somebody said Netflix has returned, I don’t know, 10,000% over the last, 12 years, and the average investor would have sold at 10 times.
Chris Mayer: Yeah, that’s definitely true. I mean, yeah, I agree with that. I mean, you see things go up 10…you have a stock goes up 10X,
Steve Symington: Mm hmm.
Chris Mayer: How many times would you have sold it along the way.
Steve Symington: And that’s I think the key. And you mentioned boredom. I’d like to ask you more about that later. But that also raises the question over why people chase returns. Can you offer some perspective on why people tend to chase returns?
Chris Mayer: Yeah. Well, I mean, some of it too is because they’re being hit all the time with with the prices. So I told the story, somewhere there’s a friend of mine who invested in art, one time and he bought a painting just because he liked it and he put it on his living room wall, and he left it there and then 20 years goes by, and he decides he’s downsizing. He’s going to sell. So he’s got this painting that he bought and liked and decides to go to Sotheby’s and see what it was worth and it turns out is, you know, it’s worth like some huge multiple what he paid – say he paid $15,000 or whatever and now it’s worth like $800,000 or something crazy like that.
And he was telling me the story. I remember he said, well, if somebody was there, you know, every day, giving me the price for what that’s painting’s worth there was no way he would have just left it there for all that time. Because they would have certainly been a time where you’ve been, like, wow. You know, it’s worth 10-fold what I paid, get rid of it! Or times where it was up tenfold and then maybe came back down. He’s like, well, you know, you get rid of it now.
Part of it is just because you’re always hit with it. And if you didn’t see it, you know, you might not be so willing to chase returns to go after something else, you know, so I think that’s a big part of it. And, you know, one of the ideas I like is that coffee can idea. I know we talked a little bit about beforehand and I don’t know if we talk about it now, but that’s an interesting idea too. And so the idea of the coffee can, it comes from a guy named Robert Kirby. He was a money manager. And he wrote an article, I think it was in 1984. It’s called the coffee can portfolio. And it’s an interesting story how it came about because he was managing money for a client. And unbeknownst to him, this client’s husband, I think it was, he was managing the wife’s money, the husband would kind of copy the picks because he saw what was going on in her account. So he’d buy a little for his account when he saw new buys come in. But there was one difference, is that he never sold anything. So Kirby’s over there, being a good active manager and he’s adding things here and trimming things here. Occasionally he’d sell something. And the husband’s over here just buying and just leaving things alone.
And then at some point the husband dies and that account rolls over to the wife and is back in Kirby’s charge and that’s when he sees it and it hits him. He looks at it and he sees there are several stocks that are up like multiples. You know what he originally recommended, and there’s one stock that’s worth more than the entire account, the wife’s account, and that really hit him that, you know all these transactions we do, all this stuff, you would have been better off just leaving them alone. And that’s where you came up with the idea of the coffee can.
It comes from the Old West where you put all your valuables in a coffee can. You just kind of hide it and leave it away and hide it somewhere, you don’t look at it. And so the equivalent would be, you know, you come up with a portfolio of whatever it is, 10 stocks.
And you kind of create your own coffee can where you don’t look at those. You kind of carve off some money and you’re just going to let those ride and see what happens. That’s one way that sort of conquers the temptations to do things.
Steve Symington: If you just stop (selling) everything, and you know I’ve talked about that several times with the guys, it’s like, and we’ve written updates and everything. It’s just to say, had we not sold anything we ever bought, you know, there’d be some losers in there.
Chris Mayer: Absolutely.
Steve Symington: I’d see stuff I bought a decade ago that’s worth less today, but by and large, I’d be much better off had I never sold anything and you know you look at you know some of the stocks that I was buying you know I found some old brokerage statements from like 15 years ago. And I’m like, Oh my goodness. It’s really, I wish I still owned that. And you know, it’s hard to tell. You know, find the money trail and see what I did with it, you know, since then, but you know with so little effort, buying it, putting it away, coming back and just checking after a decade or something and then see what happened.
Chris Mayer: Right.
Steve Symington: That coffee can idea.
Chris Mayer: Yeah, I do too. I mean, and that’s, you know, you mentioned something else that made me think about when people ask, you know, well, what’s your biggest investment mistake? People are usually inclined to think about some stock they bought that cratered and, you know, they lost a bunch of money on. But the biggest mistakes are the ones, like you say the mistakes that were things that you sold.
Steve Symington: Mm hmm.
Chris Mayer: Those are the worst things that you sold, and then you look up, you know, 10 years later you’re like, holy cow. You know, if I had I just sat on that. Yeah, I remember one of the first stocks I ever bought way back, and then this would be, let’s see, this would be like in the 90s. It was Intuit. And I think, wow, if I just let that thing alone. I mean, it’s a huge winner. So I mean, those are your biggest mistakes.
Steve Symington: Yeah, I wrote a little update for 7investing a couple of weeks ago and I think I was talking about – it was only five years ago – you know, I just sold a small basket of stocks. I needed some cash for a down payment on a house. And I’m like, well, let’s turn my portfolio, to sell a few of my stocks and I kind of went kind of evenly across the board. And one of them was NVIDIA five years ago, and I sold
Chris Mayer: Oh, wow.
Steve Symington: …it was a few hundred shares for, I think, about $6000. And now I look and those few hundred shares would be worth something like $120,000 and oh gosh, and you know, spoiler: My down payment on this house was not $120,000.
Chris Mayer: Right.
Steve Symington: Yeah, but I mean that’s five years, you know, and rewind farther and the stories get more sobering and yeah. So yeah, it’s really, you find a lot of investors taking this sort of manic active trading approach to stocks and you do, you’ve chalked a lot of that up to boredom. I mean, you’ve mentioned it before but what other ways have you found are best to kind of deal with the challenge of being bored when buying and holding stocks for long periods of time?
Chris Mayer: Yeah, I mean that besides the things that I’ve mentioned, you know, so the coffee can is one kind of interesting idea, you know. Focusing on the business is another kind of interesting idea just, you know, if you have some metrics that you look at and maybe you update. You know, every year, that can be a way. You know, I’ve been thinking about this. This is the one that I’ve been thinking about only recently because I’ve been more active on social media. Twitter and things and you know there’s always these people who put out how great they’re doing, you know, either their accounts or some stocks and you know that the pull of that is also I think can be definitely negative. I mean, if you’re constantly comparing yourself to where other people are, and you’re constantly comparing your stocks to other stocks.
I mean, that’s going to drive you crazy. So you somehow have to stop that, you know, don’t constantly compare yourself, benchmark yourself every quarter and year against other portfolios or stocks that you see, because you’re bound to give up on what you own.
And Phelps talks about this too. He writes about how almost everything that you read and hear from Wall Street or the investment community is a kind of a call to action. Always somebody is trying to get you to buy something and you can’t can’t buy everything so somehow you have to filter that out. And that, that’s another another aspect of it.
Steve Symington: I think you mentioned in the book, too, “That’s why I travel a lot,” just to keep yourself occupied.
Chris Mayer: I haven’t been able to do that this year, which is…
Steve Symington: What a difference, a few years makes but yeah.
Chris Mayer: Definitely, I definitely love to travel. I would go all over the place. And yeah, and that would get you away from your computer screen, get you away from obsessing over your tickers and news. Yeah. So, even now. I mean, there are times where I just don’t log into my account. I don’t look and sometimes I see how long I can go before you know I’ve got to at least look. And yeah, to be honest, it hasn’t been more than just several days before I’ll have to go back and just take a look.
Steve Symington: Yeah, well I’m sure more than a few people listening could say they’ve hopped onto their account several times already today.
Chris Mayer: Yeah, that’s right.
Steve Symington: You know, and that’s hard.
Chris Mayer: It’s super hard. And because you’re curious, you want to see what’s going on. You get that little dopamine hit when stocks are going up, you know.
Steve Symington: Yeah. And then the crash when they’re falling.
Chris Mayer: Then you feel bad when things are going down, I never should have bought that thing, what was I thinking? Beat yourself up. I mean,
Steve Symington: Yeah so I’d like to maybe talk more about the number of stocks, that’s the other thing that people say: How many possible 100-baggers could there be? And you list, I think in the appendix, or the index of your book, 365?
Chris Mayer: Right
Steve Symington: Which incidentally was the same number of stocks I think that Phelps had in his index when he wrote. That’s a lot of hundred baggers and some of them might be really, really difficult to predict. But, you know, in hindsight, you look back and you say, well, this should have been somewhat evident to people, but…
Chris Mayer: And some of them were much more than hundred baggers you know there were 1000, so it’s like, you know, you could have bought some of those hundred baggers any time for a stretch of, like, five or 10 years and made 100 times your money.
Steve Symington: Yeah, so you’ve got a decade to find this thing. But actually, that’s one of the questions we’ve received fairly consistently since we launched from people at 7investing, is “How in the world can you possibly think there are seven attractive stocks to buy in any given month?”
Chris Mayer: Mm hmm.
Steve Symington: But I love that you cited some stats from Graham in your book that there were over 5000 publicly traded stocks at the time. There’s a lot more than that, what over 10,000 now.
Chris Mayer: Easily yeah well on the, you know, even just the US market. Right. And if you start international markets. You’re really getting up there.
Steve Symington: Yes. So, and that’s, really the individual investor Graham says should be able to find at least 1% of the total list, and at his time, that would have been 30 or more that offer attractive buying opportunities. Now would be 50, 60 or more.
Chris Mayer: Right.
Steve Symington: And that’s I think a very important point. Is there a lot of good businesses out there. And you wrote something to the effect of, if you can’t find anything compelling, you’re not looking hard enough.
Chris Mayer: That’s right.
Steve Symington: I’m assuming you still agree with that sentiment?
Chris Mayer: Yeah, yeah. I mean, I do. And sometimes I react to the people who want to just always say, well “Stocks are overvalued,” you know, and then they stop. You know, it’s kind of like saying, you know, “Nobody makes a good hamburger anymore.”
Nobody? Nobody? Not a single person in the country can make it. You know, so, that’s how I feel like you’re saying “Stocks are overvalued!”
All of them? Really? Every single…you’re telling me — there’s thousands of stocks. You’re telling me you can’t find, you know, 50 that might look interesting? I mean, then you’re just not looking. Because there’s always always interesting opportunities. And that’s one of the things that came out. Well, that’s one of the things Phelps talks about in his book because there’s just every year this recurring batch of, you know, dozens of 100-baggers that you could have bought.
And even just doing the study, you know, then myself and updating it was the same thing was true from the period of time I did it updating from ’62 to 2014. Every year, there’s just, there’s lots. So, and again, my study too was only limited to the US market. And I also put, you know, market cap and liquidity restrictions around it. So if you were to loosen that up, you throw Canada and they throw some European markets in there. I mean, it’s even bigger so I would agree. There’s lots of opportunities.
Steve Symington: So I have to ask. To that end, you know, are there any kind of potential hundred baggers that have caught your eye at this stage that you’re sort of kicking around, you know, kicking the tires on it?
Chris Mayer: Yeah, I mean, you know, I have some stuff that I really like and I think they’re not particularly big and they have these attributes and their returns on capital or you know 20% or above, and like I think there are companies that ought to be able to compound for 10 years or more. So, you know, you do the math have to say that there may be one in there, but it seems absurd to say it because some of them are really in kind of boring industries and you know there, you know, whether it’s like pizza delivery, or just doing ordinary things that you wouldn’t associate necessarily with something that’s going to go up 100 fold. So that’s why I always emphasize in the book that you know, not necessarily to sit there and look around for stocks and say, you know, I’m looking for something that goes up 100 to one because it seems so incredible. And yet, if you look at a lot of stocks that did go up 100 times or more, they often were humble businesses. McDonald’s. I mean, who would have been, if I’d gone to you and had a hamburger chain with 100 something stores or 200 stores or whatever they had when they were public. You know, it would have been a stretch to say, well, it’s gonna be 100 X. But if you just focused on, you know, the individual unit economics of a McDonald’s franchise and you could see how they return on capital they were getting every time they added it and so I prefer to think of that 100-Bagger question as a math problem really, you know, try to focus on those companies that can earn a high return on capital, can reinvest and earn it again, and where you think they’ve got the runway. And then the math and the time will do that work for you.
Steve Symington: Yeah, it’ll eventually just compound.
Chris Mayer: And even if you don’t hit the 100X, as I always say, so what? If you get 50X. People, you’re going to be delighted at 10X!
Steve Symington: “I only found a 50 bagger.”
Chris Mayer: Yeah. That’s so disappointing.
Steve Symington: Said no one ever.
Chris Mayer: Said no one ever. I mean, I wish I had thought I’d come across this much earlier because, you know, for a good long part of my career out just kind of more a value investor. You know, I’d buy things that are undervalued, sell them when they got close to being fully valued or overvalued. And, and I think this is a much better way to be, you know, to find quality assets, you can just sit on and own.
Steve Symington: Well, and you’re still not that old either so.
Chris Mayer: I still have time, I hope. Yeah.
Steve Symington: Yeah, I think I’m like, “Okay I’m only 37 years old.”
Chris Mayer: Yeah, you got a lot of time, you can do it still.
Steve Symington: I’ve got a good three or four decades
Chris Mayer: You’ve gotta get one. Chuck Akre who I talk about in the book, Chuck Akre he’s a great investor, he’s got two. So, you know, it can be done.
Steve Symington: Well, and someone asked me – I didn’t respond. I kind of wanted to wait to respond because I figured we’d talk about this – in the Twitter thread, where we were talking back and forth when I was camping and reading your book.
Chris Mayer: Yeah.
Steve Symington: They said, how many 100-baggers have you found?
Chris Mayer: Oh everybody always brings that up.
Steve Symington: Yeah, yeah. You know, I said, well, I’m still young and you know I look at the time and I haven’t found…I hope some of the stocks that I bought early and I’m still hanging onto will turn into 100-baggers, but…
Chris Mayer: Right.
Steve Symington: Like you said, it only takes…
Chris Mayer: Yeah, well, that’s a little, you know, people will ask that. “Well, how many have you had?” And it’s kind of a little unfair because for one thing I wrote the book in 2015. You know, I haven’t really been thinking in that way for very long. And even after I wrote it. I still, I thought of that as a portion of something I would do in a portfolio. Whereas now, it keeps growing and other things I keep dropping. This is becoming more and more the focus of what I want, but you know, so what?
The principles are the principles, whether I have had one or not, it doesn’t matter. Whether you have one or not doesn’t really matter. Getting closer to the goal.
Steve Symington: Yeah, exactly. You know, it’s like, Okay, I’ve got, I’ve got a few 10-baggers under my belt, a 15-bagger. They’re getting there.
Chris Mayer: I’ve had a 10-bagger as well. And I also think what Phelps says is so important because he says, if you don’t think that way to start with, you’ll never get it. You know there is something to be said for putting out that huge goal. Saying yeah, you know 100 times my money.
Steve Symington: Yeah and where it really happens is toward the end of that journey.
Chris Mayer: That’s really important because when you look at it, you know, every time. Yeah. It’s all back-end loaded. I forget the math of it now, in my book, but you know the difference between being a 50X and 100X.
Steve Symington: Yeah, you know, when you hear people talk about the amount of wealth that say Warren Buffett, for example, has built in the later years of his life. It’s something like more than 90% of his wealth has happened in the last 15 years, and he’s been at this for five, six decades. So it takes a while, but…
Chris Mayer: It’s a while and it’s back-end loaded. I mean, that’s it. I think of the story I’m sure you’ve heard about the lily pads, you know, they double every day. And then on the 30th day they fill up the whole pond and then so on the 29th day how much of the pond is full? And it’s like half. So if you think about it, a lot of it comes in the back end.
Steve Symington: And that’s when it kind of kind of become stunning so before we wrap up, I do want to ask about – and we mentioned this briefly earlier – you talk about opportunities and pitfalls of investing abroad. Are there any international markets today that you think are particularly compelling?
Chris Mayer: That’s a good question. You know, I don’t usually think about it in those terms. So I don’t necessarily think yes, this is a market I want to be involved in so I’m going to go…
Steve Symington: You mentioned earlier you focused really specifically on the US today, but…
Chris Mayer: I do have quite a bit in Europe also. Okay, so yeah, actually, the beginning of the year. The fund was more tilted to Europe. And so I think, you know, I found some very interesting companies in the UK. Maybe a little, not as well known. I mean, if you look at the overall market like the FTSE is kind of like their Dow, you say, that hasn’t gone anywhere in like 20 years, it’s pretty unbelievable. Now it’s had ups and downs and all that, but it’s basically where it was 20 years ago yeah and a lot of these European markets can sometimes be like that. I mean, I have a company listed in France, one in Italy. So as for me, it just kind of expands the menu of things to look at, maybe gives you a chance to get something that’s not so well-covered or appreciated. And as long as you can, you know, it checks the other hurdles, so are the disclosures good? Or, you know, can you trust the people involved? A lot of companies in Europe are family-owned, which can be a positive and negative. I mean, normally I think family ownership as being a positive over here. And there’s a number of companies I own where there’s a family that owns a decent percentage of the stock. But, you know, that family has proven to be shareholder-friendly overtime. And I think that’s not necessarily always the case in Europe. Yeah, and you’ve got to be more careful. But I think there are some good capital allocators over there that maybe are not as famous or as well appreciated. So yeah, I have found some interesting things in other markets to do.
Steve Symington: That’s food for thought. No, that’s great, actually. And it’s one of those things where I think people sort of think, well, this is played out and you know you have a — there’s so many interesting markets out there to look at, but it can also get a little overwhelming. I feel like sometimes I have my hands full here in the US, but…
Chris Mayer: Right, right.
Steve Symington: At the same time, you know, Austin and…or sorry, Matt Cochrane and Simon Erickson, one of our upcoming podcasts is going to focus on the Indian stock market.
Steve Symington: Some really interesting conversations they’ve had recently to that end. It’s a big world.
Chris Mayer: All those markets have 100-Baggers too.
Steve Symington: Yeah.
Chris Mayer: That’s what I would like. I’d like to see. I’d like to see other people from other countries kind of do similar studies to what I’ve done, but do it on their markets. I mean, I’d love to see one for like the UK, or see you know, actually the French market too has had a number of super successful companies. So yeah, Australia. I’d be curious. But yeah, they’re all you know hunting grounds.
Steve Symington: There is a call to action for all you investment writers for anyone who’s running a newsletter who might want to do a similar study, just, there you go. That’d be great. So if you’re listening, do it. Let us know you’re doing it because we’d love to keep an eye on you.
And speaking of which, I think that’s a good place to wrap up our conversation. Chris, where can people keep an eye on you if they’re interested in following you? Where can they find you?
Chris Mayer: Well, it’s easy to follow me on Twitter at @chriswmayer. And I also blog occasionally at the Woodlock House blog, you can find by searching for Woodlock House blog. It’ll come right up. Or just my Twitter account. I always post it there as well. So yeah, definitely keep track of me that way.
Steve Symington: Good. And you can also find his book pretty easily on Amazon, one of the 100-Baggers that we’ve talked about. It’s awesome. Thank you so much.
Chris Mayer: Thank you for having me on. It was a fun conversation.
Steve Symington: Good. I really appreciate it. So yeah, let’s wrap it up there. Thanks everyone for listening. Again, I’m Steve Symington, Lead Advisor at 7investing here with Chris Mayer. And we’re here to empower you to invest in your future. Have a fantastic day everyone.
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