Chris Mayer, the portfolio manager of Woodlock House Family Capital and the author of '100 Baggers: Stocks That Return 100 to One and how to Find Them'.
In this exclusive interview for the Stock Club podcast, Emmet quizzes Chris on his strategy for finding stocks that will grow 100 fold and the two attributes that he looks for in a company that's poised for massive growth. He also asks Chris some listener questions, and of course, he gets some tips on the stocks that Chris really likes the look of right now.
Chris Mayer -- author, investor, portfolio manager, and co-founder of Woodlock House Family Capital. Welcome to Stock Club.
Thank you, Emmet. Good to be on with you.
Well, before we dive into your book Chris, '100 baggers Stocks That Return 100 to One and How to Find Them', could you tell me a little bit about your career to date?
Sure. I guess I got interested in Warren Buffett and investing as a teenager, so I knew I wanted to study finance and investing. That's why I studied in College. And then my first job out of College was in corporate lending. So I became a loan officer and made loans to regional businesses. That was a great place for an investor to start, actually, because you learn a lot about how to do due diligence on a business and how to value them and risks and people, all that good stuff. But I was still passionate about investing, and I was reading I remember I was reading lots of investing books. Peter lynch, who was popular then. So eventually, in 2004, I started my own newsletter, and it's just kind of a nights and weekends hobby project, and that did pretty well. And within six months, I made a deal with the publisher in Baltimore. So then I did that full time, traveled all over the world and compiled a pretty good track record and wrote my books. And then in 2016, I started to work more closely with the Bonner family office.
The Bonner family owned the publisher. They published my newsletter for all that time, so I got to know them pretty well. And then in 2019, we started Woodlock House, which is a private, long-only fund partnership. And the Bonner family was my seed investor.
Named after an Irish property I notice.
Named after a property the Bonner family owns in Portlaw, Ireland. And that's where I went to propose to them to start the fund. We were in Ireland, and so I designed the name and logo everything after that property.
Beautiful. I saw the logo as a kind of representation of the skylight.
Very nice. Chris, you opened 100 Baggers by saying that you were at a lecture by investing legend Chuck Akre in 2011 where he mentioned a book that he had read in 1972 called '100 to One in the Stock Market' by Thomas Phelps, who at that time had worked for The Wall Street Journal and Barrons and a whole load of similar prestigious publishers. And it was this book and Phelps that were your springboard to writing '100 Baggers'. So before diving into the attributes of a 100 bagger, can you talk to him about the process you went through to build on Phelps's work and to isolate the characteristics of potentially big winners?
Yes. So Chuck Akre was a big influence. Not only did he point me to that book, Hundred to One, which I read and loved immediately, and I remember I would quote from it when I was in my writings, and it was actually a reader who suggested to me you should update it. I thought, wow, that's a great idea. So, yeah, I went about getting the data going back from 1962. I was working with another analyst who is more savvy with the data they made, but he helped compile all this stuff. And then I actually went out to Middleburg to meet with Chuck for the book, and I interviewed him and talked to him about it. He has 2 100-baggers to his credit, Berkshire Hathaway and American Tower. So that's how that project got started. And from then on, 100 Baggers study was born.
Well, that's very interesting because I met Chuck Akre around spring 09, and I asked him for his favorite investment idea, and he said American Tower. And at that time it was $35. I wrote it down in my diary. It's now $235. So I really should have listened. Chris, in your book, in the final chapter, I think you distill ten essential principles of a 100 bagger, which I presume are not all equally weighted. And if that's true, could you highlight the top attributes that you look for or the attributes that gets you most excited to find?
Yeah, I think the easy answer to that is two attributes really combine together and make the magic sauce. So the first would be return on capital, return on capital metric, high return on capital. Almost all the hundred baggers had some high return on capital because you think about it, you have to compound your capital over a long period of time to get to 100 bagger. As I say in the book, 25% return annually for 20 years gets you there. It's just a math problem. So you want that high return, and then you want a company that can take that and reinvest as much of it as possible back into the business and earn that high return again. And then you just keep going. That's the real engine. That's the core. And when I find that in a publicly-traded security, that gets me excited.
Every great investor says that. I think something else he said in the book was using a coffee can approach as a crutch, and that once you find a business that has the potential to be 100-bagger, you really need to give it time. And I think you said in the book that even the fastest 100-baggers in the study needed many years to get there, but it's kind of typically 25 to 30 years. Is that right?
Yeah, it was kind of a Bell curve, and most of the names fell in that 20 to 25-year range. There were some exceptional ones that took four, five years, but there were very few. So you can imagine it was a big Bell curve. And like over here, there's exceptional 4,5,7,8. Most of them were in that 20-25 years and then there were some that were slower compounders and took 35, 40 years to get there.
What sources of information do you use, Chris, for your research? So, I mean, we have every single tool available to us online these days. Which ones are your go-to tools for researching a stock?
Well, I'm still very old school about it. I go through the original filings and then transcripts. One of the great things about investing these days is getting transcripts quarterly. Those used to be rare. I remember when I started investing, I had to write away for annual reports and much less information. So now those would be primary things. I use a lot of the expert networks, like InPractise, as an example, where you get to interview people who used to work at the company, former executives, former employees. That's a really good source of scuttlebutt, if you want to say, on a name. So that's the kind of research that I do, talking to, ideally the management team, but also people used to work there, trying to get a sense of competition and then going through their original filings, reading annual reports as far back as possible, even going through transcripts years and years ago, because then you can see kind of how our story develops over time, whether they do what they say they're going to do, what changes. So that's a key part of the process.
Good old fashioned research. In fact, when I started investing first, my dad would get as many quarterly reports for a company as possible and hand them to me to read. And he had in our family home this filing boxes, folks, to the brim with company names written on the side, either with Starbucks or Disney or whatever, and I completely get it. You get into the thought process of the management team and the cadence of the numbers that are reporting. When you sit down with a pen and paper and start to look at the patterns that are coming out quarter after quarter. So I do love and appreciate that old-fashioned research approach.
Yeah, that's it. And that's strange to think about that now, but I had that as well. I would get mail away from them. And I'd have companies with their stacked annual reports going back over many years. It was cumbersome. It took up a lot of space. It was slow.
I felt guilty dumping all of those.
I did, too. I used to have a bunch I've gotten rid of all of them.
Me, too. They always had a beautiful cover on them, which was really heavy set paper. It was like getting an album back in the day where you get an album from your new band, where you used to catch up to see how these guys looked and what they were doing and reading the small notes. And that's kind of gone. Now, I have to say, I used to love getting specifically the annual report, where there was lots of color and kind of context in the opening letter from the CEO gave an insight into his or her view of where they were headed. So, yeah, I totally get that.
Chris, can I ask you a few questions from listeners that were submitted in advance, mostly via Twitter? You answer a lot of these in your book, but I'm going to fire them at you wholesale, unfiltered. Let's just hit you with a quick fire round before we move on. So I have a question here from Stefan Popo via Twitter, and he said questions to Chris, how do you think about adding two winners and losers in this environment?
Yes. Well, I love to add the winners. That's ideal. You buy and it's working and you keep buying all along. That's the preferred MO. But of course, unless you bottom tick everything you buy, you're going to be down on at some point. So, yes, you have to be comfortable adding even when they're down. And he added this environment because I know why he said that, because there's a lot of stuff going on in the world. But I try to remind investors that this is nothing the world hasn't seen before. Everybody likes to think that somehow this environment is special and different. Oh, my God, we've got to do something different now. But market has been through a lot wars and inflations in the past. And so I think it's very important that you have a good process and that you stick to it even when, especially when, times like this, when the market is down and it gets a little scary.
I couldn't agree more. I mean, it's interesting for you to say. I have not met a master investor, and I count yourself amongst that class, that has not been down significant amount on virtually all of their stocks at some point after buying. I did a review of I think it was 450 of my buys spanning a 17 year period and only something like two and a half percent of them never went into the red after I bought. And I'm very delighted and proud that I have a couple of hundred baggers. But I tell you, for the first few months, it's always a bit of a car crash.
Anyway. So we have another question here, Chris, from Three Things via Twitter, and he asked how do you think about portfolio construction? Now, if you think about 100x folio, do we want more shots on the goal, says Three Things, or super-concentrated folio and rely more on research and conviction.
Well, you know, that's a great question. I think intuitively you might think, yeah, you want to have lots of shots, but the kinds of businesses that really have these 100 bagger attributes is small and we really do the work on it. And you're looking for businesses that can generate high returns of capital, reinvested, great balance sheets, competitive positions, all the stuff you've got to do. It's not a very big list you're going to have and also how many names can you follow and really research? So there are different ways to do it. I suppose you could try a dart board kind of approach where you take tiny positions and a lot of things that seem like they might have shots at being 100 baggers. But I prefer to do a more concentrated portfolio where you've dug in and you know the names very well because you're going to be tested. As we just talked about, you're going to have drawdowns. And if you don't know the names well, how are you going to stick with them? How are you going to know when it's a good time to add when it isn't? So I prefer concentrated -- my own portfolio right now, I have ten stocks.
Ten. Okay. That's very concentrated. I mean, I usually advocate people don't go any less than twelve, and my top limit is somewhere between 20 and 30. Yeah. I'm happy at 25 positions. Beyond that, it's starting to get stressful.
Everyone's a little different on that. So it's kind of a personal choice, but something around there.
Yeah. Steven Geraghty asked via Twitter very interested to hear Chris's thoughts on the market and the effect current world events may have in respect to a growth portfolio that's already down 40%. How to navigate back into positive territory?
Right. Well, hopefully you have done your work ahead of time and you own things that you're pretty confident in that are going to be worth more a decade now from when you bought them and they're generating good cash flow and they're still performing. This is what's interesting about this particular environment now is I think it's been easier than past bear markets I've been in, assuming this does become a bear market. It's not really that yet. It's just a kind of a correction. But is the underlying companies are still doing very well. I mean, I get earnings reports are all great. Excellent. So it's not even like March of 2020 where you got some reports and there was major things happening. You can see it in the fundamentals. This has been different. This has really been not that way. So, yeah, I'd say you stick to your guns as long as your thesis is intact. Now, there was a lot of high growth names that traded at crazy prices and that weren't making any money and got way ahead of themselves. So hopefully some of those are never going to come back. Let's just say like a Peloton, that's never going to get back to where it was. That business has been compromised but I own a stock like say, Copart, was $150, got as low as 106. I'm not worried about that.
Yeah, great business. Great business. I chuckled when you said Peloton because regular listeners to the podcast will know that my colleague and our chief analyst at MyWallSt Rory was a Peloton bull all the way up. So in every podcast, Peloton is raised and this is no exception so well done. Thank you. I say to prove to our listeners I did not tee you up to mention Peloton. That's great. So Chris, Fergal Burke said I'd be quite interested in finding out Chris's approach to regularly evaluating a position as it grows over time. So you've gone up the aisle, you've married the business. What do you do then?
Yes, well, most of my American names, they report quarterly, so I certainly will check in at a minimum every quarter, which is means reading the filing, getting at least a transcript of the call if they hold one. And that would be the minimum. I know European companies that report mid year and that's it. And that's fine. I like that too. And then as long as things are going well, that's all you need to do really. Buffett had a funny line once where he was on an interview with, I think it was Andy Sewer, who asked him about Apple and said something like, well, how closely do you follow the company? And Buffett said, well, not too closely. He said I have to follow too closely I probably shouldn't own it. If you do all that work upfront, then a quarterly kind of check-in and is probably at least the minimum, is probably good enough.
Amen, brother. Totally agree. Chris, Mark C via Twitter said -- and you answer this in your book but I'll read it anyway -- is there a trend in the type and stage of an industry where 100 baggers can be found, for example, a tech enhancement to an existing market rather than an already established saturated market? I'm assuming disruption provides the opportunity, but interested to know if that's the reality.
Well, this is a good question and I do talk about this in the book and this is one of the things that sort of surprised me a little bit is that you would sort of expect to see some industry concentration. You would expect to see tech dominate the list. But it wasn't the case. Yeah, all kinds of industries. Some of them are very simple industries. So, yeah, it seems to be that industry is not as important. I wouldn't focus on that.
That's good, actually. That's really great. If you ask me, I won't dive into I think that's great. So research Interests again by Twitter asked, how do you build a position? Do you start out small? Do you grow in thirds? Do you grow along with your conviction? Talk to us about how you go from stop to go to keep going?
Yeah. Sometimes it depends on the situation, if it's a company I've known really well and I've known for a long time and I get a chance to own it, I may be more aggressive in building that position than something that's newer to me, but ideally I step something up pretty quickly to 3% - 5% and then sort of watch and follow and kind of deepen my understanding of the business and work it up to, for me would be a full position be some like 8% or 9%, and hopefully it sort of grows into that as we go along. But that's how I think about it.
So when one of those 8% or 9% -- this is my own question, this doesn't come from Twitter -- so when you have built to a full position, are you comfortable in eight years, ten years from now, it occupying 30% or 40% of your portfolio. And if so, do you do something about it?
Yes. So I'm okay if it gets lopsided over time, which I expect would happen. So right now the Woodlock House portfolio is still immature because funds are only three years old. And so a lot of these positions are still bunched up between like eight and I think the biggest position, maybe eleven and a half, grew to that. And I expect as it ages, somebody's going to emerge and it might dominate and become 20% of the portfolio, as you suggest. If I were an individual investor, I might be more tolerant about letting things get really big. But in my fund, there is a limit of 25% is how big a position can get.
Once it gets to 25, I will be taking it down and keep it under that limit. But that is, as we say in the US, a high-class problem.
Isn't it just a first-world problem? That's a very interesting approach because the portfolio that I own and that is a service in MyWallSt is called Horizon. It is exactly as you described, an early stage portfolio. Nothing has popped. Nothing occupies more than I'd say about 8% of the folio. And I fully expect a couple of those to grow and grow and grow and end up 20%, 30%, 40% of the folio. But I look forward to that quality problem as do very many of our subscribers. I know.
Me too. Me too. I remember one portfolio manager I know is retired now, but he was very successful and he likes to tell a story about how he had Walmart from early on. And he also had a limit of how big it could get. I don't know. Let's say it was 20% or something like that. And Walmart was one of these that just did well for so long. He was just constantly selling it, selling little pieces of it year after year after year after year to keep under the 20 limit. I thought, well, that's a good problem to have. And of course, then you look back, if he had just let that Walmart position go, he would have become the biggest position in his portfolio. And the track record of Walmart was better than his fund. So it's sort of funny how that works.
I'm not a fan of hair cuts along the way. I really am. I've made so many mistakes there. I'd be such a Tesla, multi, multi, multi millionaire had I not trimmed it as I went along.
But I don't like trimming either.
Absolutely. So I have a question. I have only a couple of more questions, Chris, and then I'll bring it back on to a few more that I have here before we let you off. Daniel Murphy asked along the way -- actually, I like this question because I know what you're going to say and I know it has to be said -- along the way to your stocks becoming 100 baggers, did any of them ever drop over 50% and did you have the urge to sell?
Yes. So looking at the 100 bagger study, there were frequent drawdowns of 50%. I like to tell people the best performing stock in the study over the half century that I covered was Berkshire Hathaway. And Berkshire Hathaway was cut in half at least three times. And there was one stretch, seven year stretch where it went nowhere. So think about that. That's the best you have to go through. The draw downs. And some of the other drawdowns on other names are more spectacular. If we talk about Amazon or Apple, you're talking about they've had 80% drawdowns. But all of the 100 baggers have had significant draw downs, meaning at least a third, and many of them have been cut in half some point or other in their life. So unfortunately, that's part of the -- I don't know what you call it -- the suffering we have to do as long-term investors. And then I wouldn't underestimate the boredom part either. The other part is lots of these names went through stretches where they didn't go anywhere. And I know it can be very hard to hold the name for two, three years where it's gone nowhere. And everyone else's stocks are going up other stocks here before going up. You have this fatigue that kicks in, but that's also part of it.
I find that the hardest. Yeah. Did I say on a podcast recently I was just thinking to myself that I held Activision at $11 forever. Just sat at $11 and there's nothing you can assimilate. You can't say, well, this has moved into bargain territory, or you can't slap yourself in the back for a good call. I think it's torture. I really do. I hate when the stock is flat for years.
Me, too. It's tough.
Nothing to digest. I'm going to close one last question from one of our listeners, from Preston, who said, simple question -- what is the sweet spot of the initial market cap for a potential 100 bagger? I know you talk about this in your book, but let's see.
Yeah, in the book at the time, I think it was around $350 million was kind of the median. So you might think market caps have risen since then. I'd say something less than a billion, probably the sweet spot.
Yeah, I agree with that. So, Chris, have you managed -- we're toggling away from our listeners' questions -- so have you managed to completely divorce yourself from your emotions or do they still play a role in assessing companies you own? Because as we discussed, you kind of grow-up with these companies. You have the shoe box in a corner full of their quarterly or annual reports, and a relationship of sorts is formed. Have you managed to divorce yourself from that very real human emotion?
Yeah, that's a good question. I don't think you ever fully divorce yourself because you can't be a robot. Right? You're going to have these emotions. You just have to figure out ways to sort of deal with them. So recognize when you're frustrated and angry, recognize don't do anything, at least when you're feeling those emotions. But yeah, you never really divorce yourself from it. It can still be your emotions still will haunt you and tug you in different directions. And that's one of the other difficult things about investing is keeping a cool head.
Isn't that the truth? But those emotions can play to our advantage because we're human beings, we can override bad decisions with emotions. But I agree with you. I find it very difficult to say goodbye to a stock, which is probably a behavior I've cultivated over very many years. It would be remiss of me not to ask you the question that I'm sure you're asked the most. So get ready for it. It's like a train coming down a track. And it's the same question as I asked Joe Akre way back when, which was what stocks do you like today or better still, which on your watch list have the attributes of a 100 bagger?
Well, yeah, everyone likes to ask that question. So I don't know. I'll give you the smallest market cap name I have, a name I think has a lot of attributes and is Topicus, which is a Constellation software spin-off and trades in Canada, most of the businesses, mostly in the Netherlands, in Northern Europe. It's a vertical market software business just like Constellation, the same kind of DNA. And we all know how successful Constellation has been. And this is like a mini Constellation of Europe. So I think that has many of the attributes. I like that one a lot. And it's been very volatile here in the early going. But I'm going to own it for a good decade and see where we go.
Yeah, watch that stuff pop when this podcast goes live. And I love that. Whenever I have a moment of doubt and I look at a stock, I go, yeah, I'll give it another ten years.
Yeah. Everyone should know I own it. So if you're going to run out there. But it's down quite a bit. So it's also a good one to mention.
Chris, let me hit you with just two sets of five stocks. And in each case, can you tell me what you believe has the best chance of growing meaningfully? And I presume you haven't memorized every stock in the world. I'll give you that. But let's just say -- so what we're trying to find from these two piles of five is which would you put in your coffee can portfolio that's left alone for 25 years in the hope that, when we open it up, it's up 100 fold or somewhere near that. Okay, are you ready?
Okay, first five names are: Airbnb, Lemonade, Teladoc, Upstart, and Etsy. So can I start by asking you, do you know those five companies?
I do and in fact, I've looked briefly at almost all of them, I would say, because I have a prejudice against companies that aren't making money, that will knock out several of those. Upstart and Etsy are the money makers. I think I would probably go with Etsy.
Etsy has the highest return on equity.
There you go. How about that?
72% return on equity. So you're good, you're good. You ready for another five?
All right, let's go another one.
You know, when I wrote these names down a few minutes before we went live, I said, he's going to go with Etsy. All right, let's see if my predictive powers work this time. So we're going to go with another five: Sofi, DocuSign, InMode, Zoom, and Brown & Brown. Do you know those five companies? And I know as a fact, you know Brown & Brown because I saw you talk about it on Twitter.
I mean, this is the one where I'm going to have to go with Brown & Brown because I own it.
15% return on equity.
Yeah. I owned it since the inception of the fund. And it's more than doubled since and this is one where it's not only their return on equity but it's the ability to reinvest in Brown & Brown's case, they are able to reinvest basically all their free cash flow so they're also very predictable and consistent about it so those numbers will pile up. And if you look at Brown & Brown's track record since I guess the early '90s, they've been public, it's probably not quite a hundred bagger yet but it's got to be close. The other names, I don't know as well, I did look at InMode that's an interesting name. So the first one, I don't know.
Sofi, a California-based neo bank. DocuSign I'm pretty sure you know. InMode is a wonderful business. It's an Israeli based MedTech business with robotics, software for...
...really good business on the numbers. I remember that.
Really good business on the numbers. My bet was you were going to pick InMode so it has wonderful numbers.
It's a great -- it probably has the best numbers of that group. I would give you that.
Chris, I could talk stocks with you all day and I would enjoy every minute of it but due to the constraints of time and our podcast deadlines, I'm going to have to leave it there and thank you for speaking with me today.
It was a pleasure speaking with you. Good to be on. Thank you.
I'd like to remind mind our listeners that all of Chris Mayer's books, including '100 Baggers' are available in most local bookstores and needless to say, on Amazon Chris I'll see you again soon.
All right. Thank you Emmet.
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