Our videos with Chris Mayer remain among our most popular so we’re going back to the well for excerpts from the 100-Bagger author’s latest blog.
Mayer is also the co-founder and Portfolio Manager at Woodlock House Family Capital.
He gets a lot of questions about how to find stocks that grow 100-fold or more over many years.
Here he answers a few of those questions.
by Chris Mayer
I get a number of emails about 100-baggers and I have noticed patterns, or recurring themes, to these questions.
I’ll answer several of these common questions below, including the most asked question, “Which stock do you think will be a 100-bagger?”
People like to ask me how they should structure their portfolios. There seems to be two schools of thought.
The first is to concentrate — come up with roughly a dozen favorite businesses to hold for the long haul.
The second is what I’ll call the venture capital approach — you create a portfolio of 30-50 names of 2-3% positions and hope a few of them hit.
I like the former approach. There aren’t that many ideas that meet 100-bagger style hurdles that I can get some conviction on owning.
Besides, I enjoy learning about and following my portfolio companies at some depth. I can’t realistically do that if I own 30 stocks.
However, portfolio structure is more a personal choice. I don’t think there is a “right” answer here. Do what you are comfortable with.
The more important thing is to create a portfolio you can hold onto, through thick and thin, to reap the glorious rewards of long-term, tax-deferred compounding.
And the most asked question: What stock do I think could be a 100-bagger?
Well, I wouldn’t want to saddle any small-cap stock with such expectations. Plus, there is really no upside in me giving a name. Disappointing, right? You wanted a ticker.
I could give a bit of a cop out answer by naming a few larger cap stocks that I think could get there. I bet Evolution Gaming, based in Sweden, will get there.
Constellation Software is almost there — maybe it’s already there, including dividends and its spin-off.
Topics (TSXV:TOI) is another stock that seems to have all the ingredients to make a run over the next two decades. I own all these stocks, by the way.
A couple of stocks I own are already in the club, such as Copart (NASDAQ:CPRT) and Heico (NYSE:HEI), but I believe are still great businesses with bright futures and well worth holding.
The important thing is to create a portfolio of businesses that seem to have the essential ingredients to make a long run — high returns on capital and opportunities to reinvest are two critical ingredients.
And the business is going to have to be able to do this for a long time — so you’ll want strong competitive positions and big markets to grow into. But all of this is in the book.
Or I should say books, because Thomas Phelps wrote a fine book about 100-baggers, too.
Related stories: How to Find 100-Bagger Stocks