Podcast & Book Reviews

March 5, 2020

Book Review | 100 to 1 in the stock market, by Thomas Phelps

By Ben Rundle | Portfolio Manager at NAOS Asset Management

This interesting book was written by Thomas Phelps back in 1972. It has some similarities to “100 baggers” which was more recently written by Chris Mayer and is also a great read. Both books focus on stocks that have returned their investors 100 times their initial capital. They both hold the same key underlying thesis - in order to generate a return of that size, an investor must be a true believer in the stock with a level of conviction that prevents the investor from selling at various points during the journey. In a lot of the cases, volatility in the share price sometimes saw a 50% fall from peak to trough before reaching the 100x return status.

If we look at an Australian example of this, in 2008 at the height of the GFC you could have bought $10,000 worth of Magellan (ASX: MFG) shares and paid around 70c per share which would see you owning 14,285 shares. However, if you had paid 70cps and thought you may have picked the bottom, you were wrong. A buyer at this price on this date saw their investment fall by 56% to its ultimate low of 31cps in February 2009 which saw the value of their 14,285 shares being worth $4,428.35. That’s a painful hit for anyone to take and would cause most investors to cut their losses, but if you had ignored the daily quotation and held on until February 2020 when the shares hit $74.91, the value of your 14,285 shares would have been worth $1,070,089.35. It gets even better though as Magellan has paid $7.28 in dividends during that time which adds another $103,994.80 for a total of $1,174,084.15. That’s a 117x return on your investment and you were 56% away from picking the bottom.

If you want to find out the typical characteristics that make up a stock returning so much, this book is a great place to start.

Link to book 


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