1. Understanding 100-Bagger Stocks
Chris explains the concept of '100 baggers' and the impact they can have on an investor's portfolio. He discusses the patience and long-term view necessary to reap such massive returns, emphasising the importance of business-focused investing.
2. The Art of Patient Investing
The conversation highlights the virtue of patience in investing. Chris shares his approach to holding stocks for the long term, and how this strategy contrasts with the more common short-term focus prevalent on Wall Street.
3. Identifying Potential High-Growth Companies
Mayer provides insights into his methodology for spotting companies with the potential to grow 100-fold. He emphasises the importance of understanding business fundamentals and the market environment in which these companies operate.
Stay tuned for more fascinating discussions and valuable insights in our upcoming episodes. Until then, keep exploring, keep learning, and keep thriving in the world of finance!
Chris Mayer: 0:00
You're gonna have to shut off the news and the pundits telling you when the next crash is coming and how you should move here and there and everywhere. I mean all of the media and all. Wall Street is really geared to make you trade, so you have to kind of find a way to immunise yourself against those influences. There are companies that have lower margins but still do it like grocery stores or like a Walmart. It's been a great business and a lot of growth. You know. You see that because we talked about 20% a year for 20-25 years to get there. So if you see sustained growth, these are the kind of things that would really get my attention and make me take another look.
I just want to give a quick word to my friends and sponsors at Vodafone Business. I used to think of Vodafone Business as only a reliable provider of mobile and broadband needs, but they're really stepping up to help Irish businesses grow and flourish in an increasingly digital world. So they now offer a whole array of digital apps, from productivity tools and security solutions to IT, sports and even website builders. More recently, vodafone have launched their V Hub Digital Advisory Service. With its new service, Irish businesses of all sizes can get free one-to-one digital support and advice tailored to their business by simply booking a call with one of the V Hub digital experts. On the Vodafone Business website, search Vodafone V Hub for more information.
Emmet Savage: 1:20
Today's chat with Chris Mayer, the author of 100 Baggers, on when to Find them, is a timely one, as it coincides with the launch of my Wall Street's new service, nexus. Imagine having had the foresight to invest in industry giants like Amazon, nVidia or Tesla before they skyrocketed in value, forever transforming your financial future. Traditional stock ranking generally overlooks hidden gems, meaning you don't find out about great investing opportunities until after they've made major gains. That's why we've created Nexus, our groundbreaking AI powered stock picking service, so that you can find those hidden gems before they become, as Chris Mayer said, 100 Baggers. It harnesses state of the art AI, advanced segmentation and the expertise of seasoned investors to identify game changing investment opportunities worldwide. Nexus is not for everyone. It's designed for dedicated investors with a long term horizon and comes with a premium price point, but the chance to invest in these stocks is intended to be life changing. Get your exclusive launch discount offer in the show notes today. Hello everyone and welcome. As some of you may recall, I interviewed Chris Mayer on Stock Club almost a year and a half ago and to this day, it's our most listened to episode. It gives me great pleasure to welcome Chris for another round of questions and conversation. Welcome back, chris.
Chris Mayer: 2:52
Thank you, emmett, good to see you again.
Emmet Savage: 2:54
You too. So, before we dive in, I'd like to remind our listeners of your bio. Chris Mayer is the co-founder and portfolio manager of Woodlock House Family Capital Fund. He has written several books on the subject of stock investing, most recently 100 Baggers on where to find them, which was the focus of our last conversation and will be the focus of this episode too. Chris, I'm sure of all your incredible professional achievements, your appearance in Stock Club in March 2022 is a pivotal moment.
Chris Mayer: 3:26
Right up there, top of the list, emmett, really.
Emmet Savage: 3:30
OK, look as a recap and for those unfamiliar, can you explain what a 100 Bagger is and what is its significance for investors?
Chris Mayer: 3:42
Well, I mean what it is. It's very simple. It's a stock that returns at least $100 for every dollar invested, and in significance, I guess you would say that many of the best stocks over the long term have been at least 100 Baggers, and the other interesting thing about it is you had years and years to buy them and still make 100 times your money. So we're talking about the very best performing long term equities in the market.
Emmet Savage: 4:14
To save me the maths approximately what percentage of companies achieve 100X potential on the public market.
Chris Mayer: 4:24
You know, I don't know the percentage because the book I wrote had a study that came up with 365 names and I was an update from a study that Thomas Phelps did in 1971. And he also had 365 names, ironically with a different time set and different data set. So I don't know the percentage because there's tens of thousands. You include little penny stocks and things like that on the pink sheets. I don't know what the population is.
Emmet Savage: 4:54
And yours, where your study was exclusively focused on the United States, or did it include Canada or other countries?
Chris Mayer: 5:02
No, mine was only in the United States and it went from. The data was started in 1962, was the earliest data that we could get at the time and ran through 2014. And Phelps's study went from 32 to 71. And, of course, one of the things about my book is I hope that it would inspire people in other markets to do similar studies, and I've actually seen things like that come up. People have done studies of markets in the UK and Sweden, so it's interesting.
Emmet Savage: 5:39
Yeah, and it's actually very coincidental that you both had a list of 365 businesses. It's just I'd say that was quite the shock when you figured it out. It is. It's very weird, different times periods when there were more companies listed, I presume, when you conducted your study than when Phelps did his, but at 365, I suppose that's way less than 1% of the listed entities is probably below a half a percent.
Chris Mayer: 6:06
Yeah, it's a very, very, very small percentage.
Emmet Savage: 6:09
Of all the concepts in your book. I mean, they're all very easy to understand. You have to look hard to find a potential 100 bagger. A company needs to exhibit, in your words, growth, growth and then more growth and have lower multiples and so on. And personally, I've learned more from my investing mistakes than my successes. For me, mistakes are the first cousin of selling too soon, which is right back to the point about having Zen-like patience when it comes to investing. What are some of the things that investors can do to practise patience on a regular basis, given, as you wrote in your book, it takes approximately 25 years for a company to grow 100 fold?
Chris Mayer: 6:52
Yeah, I mean it's kind of like a bell curve as far as the population goes. So the kind of median in average was about around 20 to 25 years, and so that implies compounding about 20 to 25%. That's the rough method. Of course there are outliers in either direction. There are companies that have done it inside 10, and then there are companies that took 35. So it really depends on the rate of compounding over what period of time. And then I forgot your question.
Emmet Savage: 7:24
So individuals like a 25 year wait is a very significant percentage of your life.
Chris Mayer: 7:28
Yeah, this is a big part of it. This is a big part of it. Does everyone ask well, how can you, what can you do to increase your patience over time? Because I mean, when you look at all the stocks in the study, they all had tremendous ups and downs. You have to sit through 50% drawdowns. And then there's also which I think is maybe underrated, but maybe worse is the long periods where the stock goes nowhere. So I always like to point out that Berkshire Hathaway is the best performing stock in the study and yet it had a seven year stretch where it went nowhere and that's a long time to hold stock and have it go nowhere. Meanwhile, you're being bombarded with news and you see other people and they're telling you about stocks that have gone doing well and you're sitting here with your stock that hasn't gone anywhere for six or seven years. Again, that was the best performing stock and I've done some similar analysis where I've looked at companies that I own and look back and I've seen the stretches five, six years at a time where they went nowhere in the middle of a 20X or 30X run. So you definitely have to practise a lot of patience and I think the first thing to do is to focus on the business and not worry about the stock prices. That's like number one. If you're one of these people who's constantly checking your stock prices every day, it is going to drive you crazy and it would be very hard to do. But if you focus on the business and you only check in every quarter, so when they report the results and see the things are still on track, and even then you're going to have to give them some leeway, because businesses, if you're going to own a business that long, you're going to have to own it during periods where it's going to disappoint you a little bit. Not every quarter is going to be its best. In fact you're going to have off years. Not every year of the business is going to be at its best, but the book frames this. And so once you focus on the business and you learn that businesses they're organic, they have nothing to grow 20% every year. There's some years a little more, some years last, and you keep your attention on that. That goes a long way towards increasing your patience. And then the other thing is you're going to have to shut off the news and the pundits telling you when the next crash is coming and how you should move here and there and everywhere. I mean all of the media and all of Wall Street is really geared to make you trade, to create transactions, and so you have to kind of find a way to immunise yourself against those influences. Those are two big things that come to mind.
Emmet Savage: 10:03
It's a very good point. I launched a service about three and a half years ago called Horizon and its purpose is to find 10 to 100 baggers as many of them as possible. I've been fortunate enough to have two 100 baggers in my portfolio and I can tell you what really stopped. I cannot discount Look. Any great investor who says Look had nothing to do with it I'm sure you'll agree has an inflated self view and I know very much where Look played a role. And for both of my 100 baggers the Look, if you like, was I couldn't stomach paying capital gains tax, so I was like I would sooner shed something else and let your winners win is a simple way to start investing. But what I find really interesting is the point you made is that flat is soul destroying. It's like there's no information. Every other idea seems more appealing. When you've bought a stock for 10 books and five years later it's still 10 books, or nine books or 11 books, it really is. It's crushing, it's corrosive and makes you think that nobody except me will ever see the value in this business. And I think when you look painfully.
Chris Mayer: 11:16
It makes you feel like you've wasted time. It's just painful because you look back over those. Yes, you mentioned 10, you can't stop at 10. And five years later it's still 10. Well, you can't help but look back at things you could have bought five years ago. So it's very, very difficult.
Emmet Savage: 11:31
I took a look at the greatest companies of our lives since they were IPO'd and, like those 16 years of nothing in Microsoft, I mean that is a long window to get in, but you need, like monk, like patients, to stay in because a few bought shares and 10 years later they're still at the same price. Really, the best thing that could happen to you is you don't notice that you still own them.
Chris Mayer: 11:57
Yeah, that's right.
Emmet Savage: 11:59
Well, I mean, there's a coffee can.
Chris Mayer: 12:00
Yeah, exactly, well, coffee can. We can talk about that. But there's a couple of other things about that worth pointing out. One is, you know, this is also why we don't own just one stock. Oh yeah, hopefully you've got a portfolio of whatever 10 to 15 names is kind of ideal for me, but some people have more, so you hopefully have something else that's kind of working and makes you feel good. And the other thing is that even though we say it's gone nowhere, we don't mean literally that every day it just traded 10 bucks, right, it went up to 13, went back to 8, went back to 16, went to 5. So you know, along the way of those dips sometimes you just sort of you're constantly. Most people are net investors, you know for a while, so they buy a little more during the dip, so you can maybe feel like you're accomplishing something that way too.
Emmet Savage: 12:51
Yeah, yeah. I think that the best hack for an individual investor, a hack for their own psyche, is to decide when I buy this. I'm never selling it, so I better make that buy decision with great caution, because I know I'm going to forget why I bought it. So I just buy it as an interuser parlance, put it in the coffee, bury it at the end of the garden, forget about it and let those years pass by and work on your career and your family and your friends and your profession Like it really is. From my personal experience, the only way to ultimately win it investing is to just don't sell.
Chris Mayer: 13:29
Yeah, and it's kind of like you know real estate, if you, when you buy and sell real estate, it's difficult, right, there's a whole process involved, there's closings, there's costs involved. So nobody just goes off casually, buys a rental property and then, oh, I'll just, you know, dump it two weeks later or whatever. But I think, with the stock market, because it's so easy for us to buy and sell and get in and out, it really works against us.
Emmet Savage: 13:52
Chris Mayer: 13:52
So you have to think of it. You know I like that mentality. You go into it thinking about it that you're never not going to sell it, because then that forces you also to really raise the bar on what you'll buy and you'll resist the you know something that somebody's touting to you, that's you know it's not, clearly not something. You're going on a long time. You're just thinking you're going to make a quick buck on it and those are going to be a big distraction. The other idea you could do which I sometimes mention to people is you have a small amount of money where you can scratch that itch. If you really have to trade, then you have a small account where you do that and you realise that that's not like your serious money. And then you have another account, another portfolio that you do your long term leave it alone investment style, so that helps you.
Emmet Savage: 14:38
And I see that in a lot of say grown up investors or investors who've been around the block, they realise they do need to scratch that itch and I think Jason Zweig and his book your Money and your Brain kind of talks about that phenomenon which he said is more prevalent in male brains, the need to have a flutter. And there's a dotted line between the point you made and the horse racing industry, that the sport of horse racing tickles a part of your brain that otherwise you wouldn't get stimulated. So if that has transposed into your stock investing life, well then note that this account over there is your high frequency trading account. But I like it.
Chris Mayer: 15:20
I had one of my investor friends who's like he's in his 70s and he says I remember telling me look, Chris, I don't smoke, don't drink, I don't gamble, I don't do it. This is what I do. He has a small account where he will mess around with penny miners and stuff. It's not serious money, it doesn't hurt him if he loses it and he understands it and that's okay, I understand it.
Emmet Savage: 15:40
Yeah, and I interviewed Bill Mann of the Motley Fool a couple of weeks ago, who's an absolutely wonderful investor, and he said that no market is perfectly efficient. It's just the American market, and I'd say the American markets I include Canada, north America as a whole are just more efficient than the others, but they're not perfectly efficient. I mean, take that logic and put it onto the property market. Just to come back to the point you made, it's highly inefficient, it's so illiquid. When you look at your home and you want to value it, really what happens is they look at the houses to your left and right that sold most recently, which could have been 18 months ago, and you've got this really inefficient, slow pricing mechanism that feels like turning on a tap and toffee comes out instead of water. Well, the fire hose that is the stock market, as we know, shouts a price to the fraction of the penny at us all day, every day. But yeah, absolutely so. Tell me, Chris, walking through your research process, when you're trying to find a 100-bagger, the elusive 100-bagger, what traffic lights get you most excited to find? I mean, you have documented very carefully in your book the actual attribute to look for and I don't wish you to dive into all of those, but which traffic lights get you most excited?
Chris Mayer: 17:00
Well, I mean, I think at first glance high returns, somehow, high returns on capital. So you know, turn on equity is an easy one to think about. That measure has lots of flaws. Companies can be very leveraged and can show high returns on equity. Or if their company has done a lot of buybacks and so the accounting equity is small, the ROE can be inflated. But that's why I say ROE will return on invested capital or return on capital employed. So remember, these measures just go to and I find one that's just consistently just cranking out these high returns. You know, that's something that gets me excited, interested to take a deeper look. Higher margins are kind of preferred but not necessary. I mean, there are companies that have lower margins but still do it, like grocery stores or like a Walmart. It's been a great business and a lot of growth. You know, we see that because we talked about how we need 20% a year for 20, 25 years to get there. And so if you see sustained growth. These are the kind of things that would really get my attention and make me take another look.
Emmet Savage: 18:08
So return on invested capital? This is for our listeners' purposes, because, honestly, I forget this stuff so quickly. But for our listeners' purpose, return on invested capital measures how much profit a company generates from its total capital, whereas return on equity measures how much profit a company generates from its shareholders' equity. Now, logically, it feels to me that investors should pay closer attention to return on invested capital because it takes account of all the resources the business has put into making money. But it feels to me it's not even feels. In your book and in a lot of other investors' books, return on equity is preferred over OROIC. Can you explain why, Chris, is one just a proxy for the other?
Chris Mayer: 18:57
Well, I think people like to talk about ROE because it's simpler. I mean, it's available on all the financial websites. You know it's just there and it's an easy number and it depends. I mean it can be a decent proxy for a company that's not levered. You know there's some other things where it might be close, but I would be careful. Just looking at ROE, with all these numbers, there's a lot of people who want something they can just kind of check off. So they want to know there are certain numbers that you hit and then you're good. But investing really doesn't work that way. I mean all these companies are different and there's unique things about certain industries, so you really can't just punch in a number. And that was another thing that definitely I learned doing the 100-bagger study myself. I kind of hope that there might be like a little financial template of four or five numbers that I could say, oh, these are the ones that are kind of good predictors. But it really didn't work out that way. I mean there's so many ways up the mountain. I mean, you know, even if you say you want a company that's high margins, I mean that's not necessarily true. Companies with low margins have become 100-baggers, even the growth number. We want a lot of growth, of course, but there are also companies that achieve the 100-bagger status because they were such aggressive purchasers of their own stock and started off at such a low multiple. I mean, it's just like if you think of 100-bagger as a peak of a mountain, there's a lot of paths, paths again.
Emmet Savage: 20:21
Oh yeah, that's a very good point. So I'm going to play a little game with you. All you have to do is say back one word agree or disagree and I'm going to hit you with a couple of questions or sorry statements and they're not coming from my own belief. I just want to ask you, do you agree or disagree? So, based on the point you just made, I'm going to make a statement. Here we go. There are some 100-baggers that have almost none of the attributes you defined in your book, apart from being small-starred. Agree or disagree?
Chris Mayer: 20:57
Well, I would say agree because, again, my study excluded a lot of penny stocks and things like that. So, if you're going to include those. Certainly those did not exhibit any of the attributes that you know. It was just luck. Some guys went out and found some huge deposits and became mine. You know that's something that's not going to be predictable within the framework that I put in the book. Or if you have a small biotech company that has no revenues and it's really just a publicly traded science project and they hit a drug that then becomes you know bought out, and then you come back to the product that's not going to be predicted within the framework of the book.
Emmet Savage: 21:32
So yeah, Okay, well, that just means.
Chris Mayer: 21:36
I was looking for something that could be predictable within that, but there are certainly 100-baggers, that's a very important nuance.
Emmet Savage: 21:43
So let me then hit you with a related agree or disagree when screening excludes biotech and financial companies. Agree or disagree.
Chris Mayer: 21:59
Well, for me, I'm going to say I agree because of my personal preference. I don't like the fact that I don't know any financials, meaning banks.
Emmet Savage: 22:06
Chris Mayer: 22:08
Right, and I'm not a biotech guy, but perhaps if someone has some expertise in that area, you know I wouldn't say you don't. Look at biotech. Banks are interesting. I mean, the thing with banks is I also run a concentrated portfolio. Right now I have 11 stocks in the portfolio and I don't intend to have more than, let's say, 12 would kind of. For me it was kind of the top number. So the problem with a bank is banks are inherently leveraged and you could always have some surprise. I mean, we just went through it. Look at Silicon Valley Bank was the top performing bank for so long and then zero in a matter of few weeks. Yeah, signature bank. Every once in a while you have these banks that just come out of the blue and you get a whack. So I think if somebody runs a concentrated portfolio, like I am, I don't want to take that sort of risk even with an existential risk.
Emmet Savage: 23:02
Oh, I get that. I have gone through years of developing a system and I just, at the end of it all, I avoid fashion, pharma and finance. No, it's, I have an inversion to it. I don't say no, like I am a fan of some financial businesses like SoFi or some pharma businesses that are interested in recursion therapeutics at the moment, but, more to the point, because Nvidia invested heavily in them and said, hey, here's a whole pile of chips, go do your thing. So there's things that I can look at and assess, but I'm with you entirely when the raw material of a business is money, when money goes in the back door and out the front door, it's a far harder business to understand. How's the value added in the middle bit? For me it's always been a little bit like I agree.
Chris Mayer: 23:49
I agree, I guess, if the business really only works with a lot of leverage. So this is a problem too. I don't own real estate in the fund because real estate only works really well as an investment because you can put a big mortgage on it and then you get this huge leverage effect on your equity. Of course, lots of people have gotten wealthy with real estate, but again, this is a personal preference thing. It involves a lot of leverage. But you mentioned finance companies. I mean there's a lot of finance companies that operate the same way. They're skimming and they're making a very little narrow spread or margin and it really only works as a business. So they get an ROE of 20% because they've leveraged it so much.
Emmet Savage: 24:32
Have you noticed attributes common to 100-bagger apparitions Companies that on the surface look like they're going to grow but actually turn out to be phonies. Like where you went. Oh, I was always keen on Acme bricks, and then Acme roads, and then all of a sudden something just didn't work.
Chris Mayer: 24:52
I don't know if I would say phonies, but I would say some companies that show you could run into a company where you have really good earnings growth, for example, but the company requires so much capital to produce those earnings, produce that earnings growth, that the actual returns on capital are very low. The market's smart and eventually sees through those. Sometimes they can be tricky. You can have companies that appear to grow 20%, 30% a year but they're spending so heavily on, say, marketing expenses. As soon as they shut that off, then the business starts to roll over because of churn or whatever. There are some traps like that. But I think as long as you don't get overly enamoured with just earnings growth and you do a little analysis of what produces those earnings and the sustainability of it and the true underlying economics of it, you should be able to avoid those traps.
Emmet Savage: 25:58
When you look at it, let's go with another, agree or disagree. When you look at the parameters, yeah, I like that game. Okay, right, here we go. I'm going to make another statement. When you look at the parameters for finding a potential 100 bagger, the only real risk factor is its size. Apart from that, what we're looking at is quality companies with great momentum. I agree or disagree.
Chris Mayer: 26:21
I agree, yeah.
Emmet Savage: 26:22
Chris Mayer: 26:24
I agree that you're really only looking at quality. If I understand it right, you're really looking at quality companies and size is not as important. Is that what you're saying?
Emmet Savage: 26:31
Yes, exactly, exactly yeah.
Chris Mayer: 26:35
But there is a little difference, yeah. When I originally wrote the book, I said like 300 million was the target. I kind of took guard people to really stay small. But I think over time what I've learned is that that kind of is too limiting. If you run out of a business that's a billion or eight billion or 10 billion and it checks every other box, I wouldn't let that go just because it's a 10 billion dollar market. Now there's an extreme on the other side, obviously Apple, you're not going to I wouldn't mess with. So I think there's more of a window there than I allowed for the book.
Emmet Savage: 27:10
Yes, okay, totally agree with you there, because I have spent quite a lot of time recently trying to reconfigure my thinking on what is a small cap, what is a mid cap. I kind of grew up thinking a small cap is like 200 million to 2 billion, a mid cap is 2 billion to 10 billion, and so on. But your point now is so on the money, because we are in the age of several multi-trillion dollar businesses and 10 years ago you couldn't have convinced me that I was going to leave to see one trillion dollar business. And now Apple looks cheap. How on earth can a multi-trillion dollar business look cheap? So when you look at a 10 billion dollar business, you're like wow, this thing is only an acorn.
Chris Mayer: 27:53
Yeah, exactly, okay. And plus these things we're talking about. I mean, it's hard to find a really true high quality business that hits all those things. So again, you find one at 10 billion. I wouldn't worry about that.
Emmet Savage: 28:07
Chris Mayer: 28:08
And say, oh, it's too big because, like you said, you don't know If you just focus on that underlying engine. I mean it's amazing. I mean, even if you look in the back of that book, I have a list of all the companies that are in the bag. There are a lot of humble businesses in there that you would never have guessed would be 100% full, but yet they can pin you, compound 20, 25% a year and get there. So I'd focus on that engine, that compounding engine, not worry too much about size. Yeah.
Emmet Savage: 28:37
So I tell you, Chris, this is fascinating and I could talk to you all day, but rather than do that, I'll probably ask you to come back again in another year and a half. I'm a little more promising stock that you don't own but you're looking into and you think yeah, I think I like to look at that. I'm going to keep it on my watch list. Have you got a name for me?
Chris Mayer: 29:01
Well, there's a bunch of businesses that I follow, and there's probably like 40 on there right now that I follow reasonably closely, so I don't know if I want to tip my hat too much about stuff that I'm you know. Oh yeah, you're right.
Emmet Savage: 29:19
Yeah, I totally. You're going to warp it. I get it, I get it.
Chris Mayer: 29:24
So I mean I could probably list off that I like, that I just don't own because they're really a liquid. You know, like I don't know. There is a company, for example, there's a little software company in Poland called Signity that is partially owned by Topikus, which is a constellation group company, very, very liquid, but it's kind of a neat little company and you know I probably. I know I would never own it because it's so liquid. But you know, those are the kinds of things I think it was an interesting company. I follow it and just sort of watch what they're doing. And then there's some companies that I like that are just really expensive but that are interesting to follow. It's funny.
Emmet Savage: 30:06
Signity. I couldn't believe he said that, because we've just built a system for identifying businesses that have the potential to 100X and we've already established this. A rare find. And I'm looking through the first cut. We've kind of ranked them and there's two companies from Sweden, one from Italy, one from Denmark, two from UK, one from Poland, one from Finland and then Signity is on the list and it's.
Chris Mayer: 30:35
You're on the right track, isn't it?
Emmet Savage: 30:39
Well, I tell you, Sweden is just like an incredible hunting ground at the moment. I just cannot believe how disproportionate it has and a disproportionate effect it has on our list of potential 100 baggers. When I remove India, which I thought was a good idea, it is number one for those businesses that have the attribute to you isolated in your bulk and in some of the other mass.
Chris Mayer: 31:04
I'm not surprised at all, I mean. I've got a lot of Swedish companies I look at and follow and I agree it's a good hunting ground. I mean the companies there. Many of them really care about Returns on Capital. A lot of them publish Return on Capital and pull it right there and they're quarterly and annual numbers, reinvesting something to talk about and the alignment is often good. So, yeah, I agree with you and actually there's a study done by Jenga Partners Jenga Investment Partners, I think and they looked at stocks that were up I think it was 1,000% over the last decade and did it by country and Sweden was way overrepresented. It was in the top five. I mean the top five were all the heavyweight you would assume was like India, the US, China, Japan, but then it was Sweden and, especially interesting when you consider Sweden, the percentage relative to the country size you're talking about is much smaller than those producing similar numbers of outperformers. It's really really amazing. There's something in the water over there.
Emmet Savage: 32:10
It is definitely, absolutely. I'm fascinated by the nation, just as you touched on it. And before I say goodbye to you, Chris, you just touched on China and let's play another game, Bicellar Hold. So you see a lovely business in China, you're happy with its metrics, great return on equity, growing sales, 25% year on year, 25% insider ownership. It's a $350 million business in a future relevant industry with a passion, fanning CEO, etc. Bicellar Hold it fully in China. It's listed in.
Chris Mayer: 32:44
China. I'm not buying. You're not buying. Yeah, I'm not going to buy it. For me, China is off limits, for me, at least right now. I don't really I don't know the market, I don't know, I don't know what I'm doing there and I think there's. You know you've got to be I don't know China expert, necessarily, but you've got to have greater familiarity with that market than I do. So I don't really do it.
Emmet Savage: 33:08
You've got to be in a different world.
Hi folks, just cutting in here to give a shout out to our friends at Babel. Did you know that learning a new language affects areas of the brain unrelated to language processing, such as visual spatial span? With Babel, you're not only acquiring a new language, but you're also expanding your cognitive universe. This fall, start speaking a new language in just three weeks with Babel, instead of paying hundreds of dollars for a private tutor or fooling yourself with language apps that are little more than games. Babel's quick 10 minute lessons are designed by over 150 language experts to help you start speaking a new language in as little as three weeks. It's designed by real people for real conversations, and all of its tips and tools for learning new language are approachable, accessible, rooted in real life situations and delivered with conversational based teaching. I personally use Babel to brush up on my French, and I can survive now in bars and restaurants, which is all I've been doing, but not a bad problem to have. And who knows, if I keep this up, maybe by this time next month I'll be doing this whole ad read in French, so we'll see fingers crossed. Studies from Yale Michigan University and others continue to prove that Babel is better. For instance, one study found that using Babel for 15 hours is equivalent to a full semester of college. It depends on what you did in college, I think. With over 10 million subscriptions sold, babel is real language learning for real conversations. So with that in mind, here's a special limited time deal for our listeners. To get you started, right now you can get 55% off at babelcom. Babel is about Babelcom. Rules and restrictions may apply. Back to the show.
Emmet Savage: 34:39
Chris Mayer, author of 100 Baggers, stocks that return 100 to one, and where to find them, or rather, how to find them. Welcome back, chris. I have a very practical question to ask you, and it concerns brokerages. Every broker, of which there are thousands, has their own angle, and I wondered how do you access a stock, for example in Sweden, that you see and you identify as one you want to hold in your folio? Can you talk to me about brokerage solutions, or even the solution you use for accessing businesses?
Chris Mayer: 35:16
Yeah, I mean I can tell you what I use. I use interactive brokers. I'm able to access the Swedish market no problem, Actually every market in Europe. I haven't had any problem with anything that I've wanted to buy there. And also interactive brokers are very cheap and competitive on commissions and all. So that's what I use.
Emmet Savage: 35:41
Great, that was such a simple answer. I thought you'd say well, when I'm buying shares in Australasia, I have a brokerage over here.
Chris Mayer: 35:51
No, I do. I mean, I do have a Swedish broker that I use, but only in very special circumstances where I'm buying a block from somebody, for you know otherwise retail trades, no problem.
Emmet Savage: 36:08
Well, Chris, you are one of the handful of people who've dedicated a portion of their life and intellect to identifying the attributes of a stock that's going to have mega growth. And we know 100, like 100 full growth is really just an eye-catching return, but if a company grows 10 fold, 20 fold, 50 fold, like everybody is happy. So what I'd like to ask you is can you name two businesses that you believe have the attributes you look for in multi fold growth, that you own and that you think will be multi baggers and hopefully, someday, 100 baggers?
Chris Mayer: 36:48
Yeah, yeah, man and my whole things are fairly public on Twitter. I think everyone's always figured out my portfolio and I write about things on blog and whatnot. Yeah, I wouldn't put the 100 bagger expectation on anybody, so certainly these are not saying these will be 100 baggers, but I think again, based on what we talked about the underlying compounding, high rates of compounding and the ability to do it for a long time. There's a couple that I like. I mean the two most recent. That's not a lot of turnover in my portfolio, so two most recent one was Lumine Group, which was a spin off from constellation software. This year that's the latest addition to my portfolio and I don't know if you're familiar with Constantly. I know you are Emmett, but maybe our listeners aren't necessarily but Costly is a software. It's been a long term big winner in the stock market. It's what's called vertical market software, so software that's focused on some industry niche. So as opposed to horizontal market. So horizontal market software you could think of say like I don't know they like Excel spreadsheet. It's just, it's going to be used by anybody can use it in any different industry. It's not particularly tailored for a specific task. But if you were running, say, a golf course or, you know, an auto dealership, there would be a specific software solution you would use for that business and that's vertical market software. And so that's what Lumine, that's what Costly does and Lumine was spun out of Constantly. You know what Lumine focuses on is a particularly industry vertical which is anything to do with media and communications. So they've got some interesting businesses underneath that. Really, you know, they provide software to TV, radio stations and all kinds of other things and they're basically following that constellation playbook. So there'll be acquisitions, high returns, software business, high returns, a lot of re-investment. So I'm excited about that one. It seems like it has a very, very, very long runway and a good team.
Emmet Savage: 38:56
I stuck it into our tool here that we've built Nexus to see what Scored gets and it wouldn't stand out with a simple number as a lead because its return on equity is just not growing gangbusters yet and it's a perfect example of why you really have to get under the hood and no number will tell you. It's a constellation spin-off. That's a human intellect observation. Do any of them, does the ROE concern you or do you believe they're going to write that ship as the business gets more efficient?
Chris Mayer: 39:30
Yeah, I mean it's part of this the way they do the spin-off. There's some complicated perforadas that are involved and then they convert at the end of the year. So it's kind of the same thing as if you look at Topikus, which is a constellation spin-off. Before this it had the same effect. So the first year is a mess as the accounting treatment of those convertibles, but next year, or at least the year after that, the financials will start to be cleaner and then people will be able to see it. So right now it takes a little work.
Emmet Savage: 40:01
You have to kind of yeah, Okay, that's great.
Chris Mayer: 40:05
The underlying free cash flow is good and I think the return on capital there, yeah, it's going to be something in the neighbourhood of 25%.
Emmet Savage: 40:14
Oh, my goodness, sure that's what we want. We want to talk about Inside. Our ownership is a little bit on the low side, I noticed. So are the managers and the owners. Were they formerly in constellation software?
Chris Mayer: 40:27
Yeah, yeah, and constellation software. The mothership is owned a lot and when the convertible is preferred you're going to have that insider ownership. And also constellation software probably has the best compensation program I've seen. You know it's focused on RLIC and growth and that's the way Lumaing Group will also be compensated and the executives at Lumaing Group when they get their bonus portion of it they use to purchase stock and open market the same as constellation. So you have really good alignment that way. You know your management team is going to be buying shares in the open market with their bonuses and invested right alongside you. There's no gifts.
Emmet Savage: 41:12
No, that's great, Absolutely Wonderful, so effective. It's a Topicus kind of twin.
Chris Mayer: 41:20
Yeah, topicus is different because Topicus is a European constellation. It's focused on it can go anywhere, any industry, so there's a lot of different businesses there. That's really like the constellation, kind of a mini constellation in Europe. Lumsing is different because it's confined to one vertical, so this median communication sort of vertical as opposed to. You're not going to see them do something in trucking or sin or something like that.
Emmet Savage: 41:49
Yeah, you mentioned in your book, Chris, that you just need good filters and we've seen we've the best of data now in my Wall Street has been upgraded, upgraded quite a lot in recent times, but we still see discrepancies from various information sources. I'm sure you've seen a two you could go to Most people jump on Yahoo Finance and weave a factset data feed and then we'll jump onto the other websites and we've we've a high belief with incredible smaller business called stratosphere who seem to have everything bang up to date for every company I use that as well.
Chris Mayer: 42:28
It's a great source.
Emmet Savage: 42:29
Oh interesting, oh, very interesting. So which source is it? When you see a discrepancy, what do you do? Do you go and figure it out yourself?
Chris Mayer: 42:38
And you go to go find it, yep. But I will say, like with filters, you know you're going to miss a lot of things. So like Luma and to be honest, I would never come up on my radar if I didn't own a constellation. I would just never. It would just never be because of the things you mentioned. It's not clear, it's not something that comes up cleanly on the screen. So that's one thing that makes it interesting too, but otherwise, yeah, my filter would probably miss that, and that's okay. But that's the point I wanted to make, is, you don't have to feel like your filter has got to capture everything. You're going to miss some things, and that's okay. As long as you've got a good enough population to work with, I think your filter is good and you don't want too much. That's the point of a filter. There's thousands of security, so we have to find a way to at least get down and yeah, exactly.
Emmet Savage: 43:29
I think you answered this already, but when you look at filters, you know there's almost no business that ticks all the boxes and there's absolutely no business with no risk. So when we look at businesses that are small, have a peg that's less than one has accelerating revenue and improving return on equity and a competitive advantage in a growing industry. It's a long list of complex things for business to go. Green light, green light, green light. Which of those parameters, indeed which parameters, are you most happy to relax? Is it market cap? And after market cap, which one would you be happy to?
Chris Mayer: 44:09
That's a great question. Great question because I thought about that a lot. The one thing I'm very reluctant to relax, but number one, yeah, market cap would be one. So you know, let's say $20 billion or something like that. That would be the one where I checked everything else. Like you said, that would be one that I would relax. Otherwise that would be very reluctant to give up on. For me it's like that. You know I look for insider ownership and that alignment. That's key. The balance sheet risks are things I would never compromise on, and some of the other stuff is a little bit of a sliding scale. So we talked about, you know, like high returns on capital, but there are trade offs there too. For example, I've owned Brown and Brown since the inception of my fund in January 2019. I bought my first shares for around $25. It's like $73 a share now. So it's, you know, doing well, but it's got the lowest returns of capital in the portfolio. But there's trade offs there because otherwise, you know, it's also such a low risk kind of low drama, steady as she goes, sort of name, and so that's what I like, having it in the portfolio, and it's such a you know, it's such a resilient sort of business. So some of these times you know you're making a little bit of a tradeoff. There might be qualitative tradeoff, so there might be. Take it the other way there might be a company that has really lights out numbers like super high returns on capital, really good growth. But I can't really get so comfortable that the competitive advantage is real. So I know, for example, I looked at a bunch of payment companies and I could never get comfortable because there are just so many competitors, there's so many different, you know. I just felt I couldn't really get a handle on it. So I don't have any exposure to that space.
Emmet Savage: 46:07
So that's a very good point. In the UK and in Ireland there are different regulations on startup investing compared to the US, where you need to have a what is it? A Reg D entity or something like that. You need to be approved by the SEC to do a raise from the public, and my point is that I keep an eye on small companies that are in build and are doing crowdfunding raises and, honestly, last year I must have seen 12, 13, 14 that were in the paymentech space and you just don't know it's, and they kind of say the same thing, they kind of do the same thing. They're differentiated on what I regard as small points, but it is a very, very crowded market.
Chris Mayer: 46:52
And really, if you're not ready, to add in yes, yeah, or so was the monster everybody loved. And now? You're starting to see, you know competitive pressures, so there are more coming in, and you know, so you got to be careful about that. And then I spent a lot of time on that, a lot of time on that. Every time I look at a business, I spend a lot of time on that competitive position and whether or not I think they can sustain those kinds of returns.
Emmet Savage: 47:21
I'm sure you saw the paper by BCG and Morgan Stanley published about a year ago Anything in the past, that isn't last month, I say about a year ago, but it was a BCG paper and Morgan Stanley where they did a 20 year study on what single factor is the greatest determined of share price appreciation and the net bottom line was sales growth, revenue growth. So that's there that we put let's put that in box say revenue growth and they say by association, ultimately that means it's net profit growth. But just year on year you see sales growth. In the other corner we also have, let's say I don't want to call it a competing number because really it's a complimentary number, but let's just say it's a competitor for now which is return on equity. If you could only look at one of those two numbers, which would you choose? In other words, which in your mind carries the greater importance? Right?
Chris Mayer: 48:22
Well, you see, if I was looking at a 10 year number or something like that and I could see, looking back, no-transcript yeah, that's a tough one. That's a tough one. I mean I guess I might See the problem with ROEs. It does have some. I know there's some companies that have pretty good ROEs but they're leveraged. I wouldn't be interested in them or their finances. That's the main thing. A lot of financials will show pretty good ROEs but their businesses I'm not interested in. Then there's a lot of accounting things that can make ROEs look good but with revenue it's kind of hard to fake it. I mean you either have the sales or you don't. So I think I might learn revenue growth. I think you might get a better list that way and then if I have this population of companies that have grown in revenues by whatever it is 20% a year for 10 years I bet that's a very good, better list than if I took a list of companies with 20%, 25% ROEs for 10 years, I think. I might get a better list, but I don't know. That's a tough call, I think.
Emmet Savage: 49:28
It is a tough call. Like you, I look in the rear view mirror and how everything is trended out. With Stratosphere, for example, they do some lovely graphs where you can just see revenue growing year on year, and then you throw ROE on top and it's a wavy line.
Chris Mayer: 49:42
Emmet Savage: 49:45
ROE is. It sways a little more in the wind but you can see quality jump off the page. But, for example, y is the UK international money transfer agent. Now, within five minutes of design payment tech companies I'm about to say I think Y has something special. It powers B2B and B2C for money transfer, but it's sales growth. It is just unbelievable. Rather it's revenue growth. And then when you look at its ROE on top, it's just growing and growing. And for me we have built in nexus, we've put a slight or higher weight on revenue growth and I was keen to hear what you had to say about that.
Chris Mayer: 50:30
Yeah, I think that's probably right. I think that's where I would learn it, and of course you always come up with ones. I mean, I think of COPR as being one of those where it's just super clean. You know, on ROE it's not really so wavy, it just bangs out the number every year. So you can run into those. But I think that's right. You probably slightly weight the revenue growth.
Emmet Savage: 50:50
Last time we spoke you mentioned a pal of yours, or let's say a business associate, almost friend, Chuck Acre, who when I spoke to about 10 years ago I said just buy American terror and don't sell it. And did I not of course it was. Yeah, he does actually, and I'm sure it served him well. So I know you speak to Chuck on a Charles on occasion, regularly perhaps. What businesses do you both admire at this time, or, better still, Are there businesses that you both own?
Chris Mayer: 51:23
Well, I don't want to overstate my familiarity with Chuck Acre. I don't want people to think like I'm sitting here and chatting. I was on the phone about ideas all the time. That's not the case.
Emmet Savage: 51:31
No, no, I got it. Well, we have to find the right one. He's a friendly associate who'd know you in a crowd.
Chris Mayer: 51:40
He wouldn't. Yes, he would, that was fair to say. Well, I mean, I think I mean he owns a big position in Constellation and he owns Toppings. I think Chuck Acre is one of the largest shareholders in Toppings.
Emmet Savage: 51:53
Yeah, so I own a good side of Toppings. I think he's the second biggest shareholder in.
Chris Mayer: 51:59
Toppigas. So that's definitely one we both admire. We both own it, yeah, so that's definitely fair to say.
Emmet Savage: 52:09
So you mentioned to me recently a company that I was hoping you might talk to me about, and then we'll let you off the hook, and it's Technion, which was also produced on our list of 10, our first cut of 10 from Nexus, and I really would appreciate if are you familiar with the business.
Chris Mayer: 52:27
Yeah, I mean it's again, this is another one. It's pretty public that I own it. I mean they recently raised capital and I was among the handful of investors there that participated in that. So that's out there. Yeah, I own it and I bought shares almost a year ago and we talked about Sweden before and I love that. Technion is what people call Swedish serial acquisition, so it's a business. That's where it's built to acquire other businesses as part of its plan to grow. And there are some long standing, very successful models of this in Sweden there's Lyft Pro, there's Lagerkronz, there's Indutrade, there's Bergman and Breving sort of spun out these companies. AdTech is another one. So I was over there in Sweden for a conference and I met the Technion guys there. So this is one where it was just random chance, I happened to see CEO Yuan present and I liked what they had to say and dug more into it and I've spoken with Daniel, who is the head of acquisitions there, and I think, yeah, so Technion, I mean they have, I think, about 25 businesses now, different businesses and small. I love the culture there. I think both those guys have. You know, they're out there on. They're out there probably, if you Google them on or put it on YouTube. There's some good interviews and things that they've given and talked about Technion, but you'll get a sense of their culture and how they think about, think about these things in a very in line with what we're talking about. This long term focus is appreciation for compounding. So, yeah, I really like that one, and I own a couple of different Swedish CEO Coires and it's a space that I'm definitely interested in and watch.
Emmet Savage: 54:32
We're just in as you and I are recording, we in my Wall Street are in the final stages of tightening as far as you can, the scoring mechanism and we're tweaking it, but right now it is in our top five and it has like a five year revenue growth that's trending up. It has a five year return on equity. It's gone trended up four out of five years and, as we said, it's like a leaf in the wind. It has a return on equity currently, I think, 25%, 26%. It's a wonderful business and what I get excited about is you telling me has a great culture, because that is never going to be a number I can be measured, I guess, and whether it's a trust pilot or a glass door, but really there's something about culture that you need to see it and feel it and that is really encouraging for me personally as an investor to hear the Technion. So you're long term. You plan to be a long term holder of Technion and Luma and here's an awkward question for you and then I'm going to let you go. If you could only hold one in your coffee can for the next 20 years, would you choose mine or Technion?
Chris Mayer: 55:42
Sure, yeah, if I can only choose one of those, yeah, I think I like Technion I'd go with that one. Now again, I'm in for a long term, so if this stock's up or down a year from now, it's not going to bother me. So, I'm thinking of this as 10 years out. We'll talk about what it's done. Oh, we'll have you in stock in 10 years.
Emmet Savage: 56:13
Yeah, we'll look back.
Chris Mayer: 56:15
We can play clips of us talking 10 years before and see how those ideas plan out but. I should own both over there. I don't see why. Whatever's down.
Emmet Savage: 56:23
No, I get it, I get it, I get it.
Chris Mayer: 56:26
Yeah, I should definitely have both. We'll see.
Emmet Savage: 56:29
It's a non-frag question because really you just don't know which of your winners will keep winning, and very often the one that you think it's ranked 20, turns out around Me too, Me too.
Chris Mayer: 56:42
Why nowadays I keep a portfolio. When I start the portfolio, the bill that I keep them kind of close and wait. I don't do this thing where people like to put 20% in their favourite name and then 3%. You have a couple of 3% positions. The problem with that and it's happened to me so many times that I've changed is that the 3% position when I'm doubling and the one that you really love is the one that, under the form, oh, in time. It's very hard to know which one of your darlings is going to be the best, so that's why you have a portfolio and set them off into the world.
Emmet Savage: 57:14
And entirely here. Here I mean, since I was a kid investor and I only had 200 a month to put into stocks, I got used to having a fixed amount so I didn't go kind of heavyweight on anything. Chris, may I? It has been a pleasure, it always is. I look forward to talking to you again. If I can ever help you, just let me know. And in the meantime, here's to 2024.
Chris Mayer: 57:35
Here we go. I meant, yep, thank you very much.
I just want to give a quick word from our friends and sponsors at Vodafone Business. I used to think of Vodafone Business as only a reliable provider of mobile and broadband needs, but they're really stepping up to help Irish businesses grow and flourish in an increasingly digital world. So they now offer a whole array of digital apps, from productivity tools and security solutions to IT support and even website builders. More recently, vodafone have launched their Vhub Digital Advisory Service. With its new service, Irish businesses of all sizes can get free one-to-one digital support and advice tailored to their business by simply booking a call with one of the Vhub digital experts on the Vodafone Business website. Checkout Vodafone Vhub for more information.
The Home of Successful Investing.
© 2023 MyWallSt Ltd. All rights reserved.