This post is going to be a bit different from my normal content. I normally like to write investigative stories or interesting takes on value investing. Lately, I have been attempting to get myself to write more often (nearly every day), as I think it really helps me gather my thoughts and opinions. 

 

This article will be an informal look into some things I have been reading, watching, listening, and experiencing lately that I thought I would share with my audience. This will range the gamut of media, so be prepared for some potentially non-related investing items.

 

Here goes nothing!

 

Books

I really enjoy reading, but it sucks a lot of time out of my day. I have made it a point lately to read more, specifically to catch up on some books I probably should have read a long time ago.

 

100 Baggers: Stocks That Return 100-to-1 And How To Find Them

 

This is the first book I have read from Christopher Mayer, and it’s a great one. I follow him on his blog and on Twitter, but this was the first book I have read of his. I really enjoyed this read. 

 

The book, and the 100 bagger strategy, is not a perfect one by any means; but that is kinda the point. The aim here is to find small-cap stocks you can hold for a long period (usually over 20 years!) in order to reap the benefits of long-term compounding. 

 

Here are the key components of a 100 bagger type stock:

 

  • Small or micro cap stock (less than $1B market cap)
  • CEO is the founder/largest shareholder
  • High ROIC, profitability, and margins
  • Long growth runway

 

Obviously, not every stock you find will be a winner, so there is inherent failure built into the method. The theory is, all your mistakes can be offset with one just one big winner. Mayer advises using a coffee can strategy to prevent yourself from interrupting compounding. 

 

I think this can be a good strategy…to an extent. I absolutely concur that investors can be their own worst enemies, but I don’t think one should adopt a coffee can strategy for their entire portfolio. Rather, I think incorporating the 100 bagger strategy into an already diversified portfolio of value and quality stocks is a smarter approach.

 

An investor may be lucky enough to recognize a 100 bagger a few times in their lives, so I think to bet big on just a couple 100 baggers is foolish. I think more reliable returns can be found by weaving it into some stocks that you may be able to 1x, 5x, or even 10x, in a shorter period of time.

 

One of my favorite value investing YouTubers, Sven Carlin, also agrees with me here.

 

Key Takeaways

Long Time Horizon

For the 100 bagger strategy to play out, you must have a very long time horizon, usually over 20 years. Very few 100 baggers have been churned out in less than that time. I can’t stress this point enough.

Valuation Doesn’t Matter As Much

Say I offered you a house that was currently selling for $500,000 today. But this house is special, because it currently resides in, say, the next Beverly Hills. I guarantee you that it will be worth $10M in about 20 years. 

 

However, you hire a crappy realtor, and they want to charge an extra percentage point in commission on the sale. Do you fold on the deal because of that extra expense? 

 

Of course not. You know the house will be worth $10M in 20 years, so you shouldn’t worry about a petty realtor and his commission. The same applies for 100 baggers.

 

This is a lesson that stings a bit for me, since I really love valuation work. This is also pretty typical amongst most value investors. 

 

Management And Capital Allocation Is Crucial

The only way 100 baggers come to fruition is by compounding. A company cannot compound with mediocre managers at the helm. That’s why Mayer points out that the best CEOs for 100 baggers turn out to be founders.

 

The executive team has to be committed to compounding the business at all costs. The book suggests looking for firms with high quality margins and profitability, with high ROICs and ROEs being preferable. 

 

Favorite Quotes

“In a world of money depreciation, the asset light company wins.”

 

“When we invest abroad, we often trade risks we see for risks we can’t see and aren’t aware of.”

 

The Most Important Thing: Uncommon Sense for the Thoughtful Investor

 

I’ve always held Howard Marks in high regard, although I never read any of his books. My main exposure to him was mainly via his excellent memos, and the occasional news interview. I’ve always heard high praise, so I thought it was about time I give it a shot.

 

Boy, what a read. I should have read this book sooner!

 

Marks has a magnificent voice and tone that I particularly like. If you are familiar with his memos (which if you aren’t, please rectify that!) the tone and voice are essentially the same. In fact, there are many passages of the memos within the book.

 

He delivers so much wisdom and common sense in the pages that you are nearly bludgeoned with it…in the best possible way. Sometimes the best wisdom needs to be hammered home.

 

 

I think this book is great for beginners. You can learn a lot of “the most important things” there is to know about the markets in this single read. Marks unloads most of the lessons he has learned over his 50 year career into this book, and it’s quite the journey.

 

Key Takeaways

Risk

I think it’s safe to say that Howard Marks is a risk specialist. He practically built his incredibly successful firm, Oaktree Capital, mostly by knowing how to manage risk properly.

 

In fact, Marks takes risk management so seriously that he dedicated three entire chapters to the topic:

 

  • Chapter 5: Understanding Risk
  • Chapter 6: Recognizing Risk
  • Chapter 7: Controlling Risk

 

Now, of course, I think risk management is very important in investing. But this book helped me understand an important lesson: I am probably not thinking enough about risk management.

 

I am probably not alone here either. Many of us prefer to focus on the rosy upsides of any investment over the downsides, and I think that is totally normal. But we can trick ourselves into thinking that the risk in an investment is a lot less risky than it actually is, and that is dangerous. 

 

Moving forward, I plan to assess risks more deliberately when making an investment decision. I think simply writing down probable outcomes is a good measure here.

 

The Importance of Second-Level Thinking 

Second-level thinking is a style of mental processing that Marks describes in the first chapter of the book. Second-level thinking is thinking beyond a first-level, or base layer conclusion. Simply put, second-level thinking is going the extra mile in your thought process.

 

As an example, first-level thinkers may shout “the stock is going higher, buy now!”, whereas second-level thinkers reply with “the stock is getting too far from fundamentals, let’s sell”.

 

In a sense, this method of thinking is similar to contrarianism. In order to outperform the crowd, you have to do something different from the crowd. Usually, all this means more researching, meditating, contemplating, or nothing at all. 

 

To be honest, I am really not doing the chapter justice in this summary, so I highly suggest you read it for yourself to fully grasp the value of this method of thinking.

 

Favorite Quotes

If I were to sit here and write some of the best quotes in this book, then this post would be as long as the Bible. I’ll keep it to just three.

 

“In the world of investing, being correct about something is not at all synonymous with being proved correct right away.”

 

“An accurate opinion on valuation, loosely held, will be of little help. An incorrect opinion on valuation, strongly held, is far worse.”

 

“Causal commitments invite causal reversals.”

Blog Posts

The Case for a Longer-Term Oil and Gas Bull Market: Lyn Alden

 

I love Lyn’s blog. This article is a doozy of a read. I am a big proponent of clean green energy and the investments we need to make in order to make a difference. However, Lyn hits readers with some cold hard facts of the “green” energy sector, and why gas and oil will probably be here for longer than we think. 

 

For better or for worse.

 

When Buying a Stock, Imagine the Market Is Closed for Five Years: Junto Investments 

 

I’ve definitely heard this advice in the article’s title many times before. Yet, I think seldom do we actually follow it. Now, sometimes in value investing, when your stock hits intrinsic value, you should sell it. But on a lot of investments you make in the markets, you should simply buy today and not interrupt the magic of compounding.

 

“The worst enemy of an investor is likely to be himself.” – Ben Graham

 

In Defense of Defense: Value Stock Geek

 

VSG writes some fantastic content; I just wish he would write more! This piece in particular obviously deals with defensive investing and risk management. It’s an excellent lesson on how to mitigate our own portfolio’s risk based on our own personal tolerance.

 

Thomson Reuters – Reclaiming the Family’s Bastion: The Investing Principles

 

The Investing Principles’ blog offers a great write-up on one of the more challenging companies on the market right now. There are a lot of moving parts with Thomson Reuters, but the author breaks down the situation succinctly. 

 

It challenged me to learn more about the company myself!

 

AGB 2021.14 – Chemed (CHE): Analyzing Good Businesses

 

I’ve been reading AGB’s weekly stock analysis on Substack for quite some time. The author always provides a great deal of information on the write-ups, and they are always a pleasure to read.

 

All the write-ups are good, but I particularly liked one of the most recent articles about Chemed (which is a company I also really like!).

 

YouTube

Naspers, Tencent, Prosus Valuation 2021 – THESIS: Andrew Brown

 

I’ve recently discovered Andrew’s channel, but it’s a true gem. He’s making great content pretty frequently, so I highly recommend it. One of his most recent videos, regarding a unique way to buy Tencent stock, was exceptionally informative.

 

Session 25: Value Enhancement: Aswath Damodaran

 

I have already mentioned Professor Damodaran’s lecture on value enhancement in my last few articles in the value creation series. In fact, the entire series was inspired based on this one lecture.

 

I highly recommend all of Professor Damodaran’s lectures, but I found this one to be particularly profound.

 

Kroger (KR) – Stock Valuation – Estimated Investment Return: Cameron Stewart, CFA

 

I have the almighty YouTube algorithm to thank for this one. Cameron’s channel offers a rational and logical process of valuation that I really appreciate.

 

He is very thorough with all the explanations of his process, so beginners won’t get lost either. I linked to his Kroger analysis, but I would suggest binging his entire channel. 

 

Not Investing Related

Kenneth Copeland goes METAL! [HA HA HA remix]: Andrew Antunes

 

Andrew’s channel always leaves me laughing with his videos. My favorites are the “Kenneth Copeland Metal” and “Karen Metal” series.

 

This dude can shred on the guitar!

 

THE TRUTH ABOUT “SEXISM IN ROCK”..: The Punk Rock MBA

 

I love Finn’s channel. He has similar taste to me in music (rock, hardcore, metalcore, etc.) and breaks down all kinds of interesting topics on the industry.

 

One of the best and most recent ones is his take on sexism in the rock music industry. 

 

Demography — China’s Reckoning (Part 1): PolyMatter

 

PolyMatter’s videos are incredibly well researched and delivered. He offers perspectives to sides of the world (mostly Asia) that I currently just don’t have a lot of exposure to.

 

His series on China, and why China may be due for a reckoning, is exceptional. If you want to get a good insight into what is actually going on within this country, then give this series a watch.

 

Eating less Meat won’t save the Planet. Here’s Why: What I Learned

 

WIL is a neat channel, full of topics that have to do with the link between psychology and our diets.

 

In one of his most recent videos, WIL examines why farming animals for meat (particularly cows) may not destroy the environment as much as we have been led to believe. He even brings on a university professor to help explain this phenomenon.

 

The White Tiger

 

I have a co-worker who was born in India and then immigrated to the US when he was 7. He still has many family and friends back in India, and makes yearly trips back to visit. He urged me many times to watch Netflix’s The White Tiger, and I finally conceded.

 

I’m glad I did.

 

The White Tiger is a powerful film. It is one that truly makes me feel lucky that I somehow won the geographical lottery and was fortunate enough to grow up in America, where most of us are treated as equals.

 

Give this film a watch. It’s a fantastic story with even more fantastic characters.

 

Wrap-Up

I hope you enjoyed this informal type post. Let me know if you got something out of it and perhaps I will do more of these.

 

See you in the next post!