What Makes a Potential 100-Bagger?

During their recent episode, Taylor, Carlisle, and Chris Mayer discussed What Makes a Potential 100-Bagger?. Here’s an excerpt from the episode:

[Chris] Yeah, what hasn’t changed? Well, that’s a good question. What has changed too?

But I’ll say what hasn’t changed. I think that the core premise of just holding on to businesses that generate high returns on capital for a very long period of time, that’s kind of been a core it’s hard to get away from. And then, which always plays into this also is the quality of the people involved in the business.

So, and there are more examples I go through in this book where you have an entrepreneur, a particular entrepreneurial person who makes a difference. You know, I remember there’s one specific example I talked about the New York Times and News Corp. And I think it’s like, I think they both had the same market cap at one point.

And then like 30 years later, I think the New York Times basically had the same market cap. And you know, News Corp is like an 80 X, 80 X. And while you had a very entrepreneurial person, whether you like them or dislike them, did a lot of things and create a lot of value that way.

And there are other examples of that too. So that’s another thing that hasn’t changed. Because I also talk a lot about that in 100 Baggers about how the biggest winners are companies you can readily put a name to, you know, if I say Walmart, and you know about Sam Walton, his story, say Apple, you know about Steve Jobs, his story, you know, Charles Schwab, you know about Charles Schwab.

So there’s a lot of businesses like that.

[Tobias] What’s the, what has changed? I guess that’s the, that’s the logical next question. Yeah.

[Chris] Well, I mean, what’s changed is some things like, I didn’t talk about much at all in 100 Baggers, I talk about more now. So let’s say, you know, growing by acquisitions comes to mind. And I think I have much more favourable view of companies that grow by acquisition than I did back then.

And part of that is, you know, just more reading, there’s a book, deals from hell, that summarises a lot of good research on M&A. And it goes against the grain. Yeah, goes against the grain of what most people think about M&A as a basic conclusion is that it’s no worse off than anything else that companies invest their money in.

And then personal experience, you know, I’ve had, I’ve learned about a group of companies that people call Swedish serial acquirers. So there’s companies like Lifco and Lagercrons and Agtech and these names I didn’t hear about and knew nothing about when I, you know, wrote 100 Baggers. And those are companies that have proven to grow very well by acquisition, including something like Constellation Software, which is, again, something when 100 Baggers came out, maybe I was vaguely aware of, but otherwise didn’t really know or appreciate.

So those are a couple of big ones, for sure.