By Ben Rundle | Portfolio Manager at NAOS Asset Management
100 baggers is a book dedicated to stocks that increase in value by a factor of 100 which is enough to turn a $10,000 investment into $1 million. The author studies ‘100-baggers’ of the past which covered stocks from 1962 through to 2014 and came up with 365 names with the results published in his book. The author acknowledges that whilst there is no specific formula for finding these companies, there are certain attributes that help which include;
- A very long runway for growth
- The stock has to start cheap as it needs significant earnings multiple expansion
- The stock needs a strong moat or competitive advantage
- The company needs to start small
- An owner-operator running the company helps its chances significantly
- The holder of the stock needs a very long time horizon
- There has to be a lot of luck involved
Of all the key attributes required, the one that stood out for me was the timeline which is coupled with the psychology of the investor. The holder of a ‘100 Bagger’ stock needs to be a true believer as it never happens in a straight line. There are numerous stocks who suffered greater than 50% declines in their share price on their march upwards. Being able to hold conviction and stay invested through these periods is the key to success.
Link to book
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