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Investing in 100 baggers involves looking for companies that exhibit sustained growth and high returns on capital over a long period. Most 100 baggers took around 20 to 25 years to achieve this level of growth through compounding capital at 20 to 25 percent annually. Companies like McDonald's and Home Depot exemplify this growth trajectory, requiring a strong ability to expand and maintain high returns on capital.
Assessing the durability of competitive moats in businesses is essential for long-term success. Businesses that consistently fend off competition have strong moats, often derived from network effects or unique business models. An example like Copart demonstrates a moat built on real estate ownership and network effects that limit competition in the salvage vehicle marketplace, making it challenging for competitors to replicate.
Owner-operators play a crucial role in businesses, with high insider ownership leading to better alignment of incentives and long-term focus. Companies with strong owner-operators like Charles Schwab and Apple under Steve Jobs have demonstrated resilience and strategic direction, driven by the entrepreneurial spirit of key individuals.
Effective capital allocation strategies, demonstrated by companies like Constellation Software, prioritize reinvesting profits into growth opportunities rather than paying dividends. Constellation's disciplined approach to acquisitions and reinvestment reflects a commitment to long-term value creation and compounding growth for shareholders.
Maintaining a concentrated portfolio, with a focus on quality businesses and high returns on capital, can be a strategic approach. Holding a few high conviction stocks, like Copart, allows for in-depth understanding of the business and potential for compounding growth over time, emphasizing the importance of great capital allocation and a long-term investment perspective.
On today’s episode, Clay sits down with Chris Mayer to discuss the lessons from his book - 100 Baggers.
Chris is the author of 100 Baggers, and the portfolio manager of Woodlock House Family Capital. Chris’s book was published in 2018, and has quickly become a favorite within the investing community. The book very clearly explains the ingredients needed for a stock to compound and grow to 100 Bagger status, which we discuss during this episode.
IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro
04:16 - The primary characteristics of companies that reached 100 Bagger status.
07:08 - How Chris views valuation when purchasing high-quality companies.
09:51 - How Chris assesses the durability of a moat.
18:15 - Why stocks are one of the best long-term protections against calamity and chaos.
44:27 - Why Chris prefers to own companies with management teams that own substantial portions of the company’s stock.
35:13 - Why Chris chose to concentrate his fund into only 10 holdings.
37:04 - Chris’s assessment of Constellation Software and why it’s one of his favorite holdings.
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
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