Nick’s Note: When it comes to finding stocks that can make you a fortune, we turn to Focus editor Chris Mayer. His book, 100 Baggers: Stocks That Return 100-to-1 and How to Find Them, is the best we’ve read on the subject.
Chris has spent years researching the best way to find 100-baggers. He’s also learned what keeps people from holding onto them before they ripen. It’s a mistake even the best investors make…
By Chris Mayer, editor, Chris Mayer’s Focus
In January, Mark Mobius, age 81, retired from Franklin Templeton (he’s since unretired to start a new asset management firm). In an interview with Barron’s, he let slip an admission about a mistake he made—one that keeps many good investors from ever having a shot at a 100-bagger, much less a five-bagger…
Mobius is famous as an emerging markets manager at Franklin Templeton, where he had been since 1987. He’s also famous for his distinctive shaved head and white suits. He looks like actor Yul Brynner.
Mobius also kept up a virtually nonstop travel schedule. He was on the road at least 250 days a year—visiting rubber plantations in Thailand, oil wells in Nigeria, or mining camps in Peru. I used to read his blog. Though he never tipped his hand much, I enjoyed reading about his travels.
He’s racked up all kinds of awards, though it is not clear to me what his track record actually is. No matter… He survived the investment game for more than 30 years and has wisdom to share.
Which brings us back to the Barron’s interview. He opined about many things and delivered a good line about bitcoin: “Whenever people ask me about bitcoin, I say I don’t talk about religion in public.”
But here’s the key exchange I want to draw your attention to:
Barron’s: What is a mistake you made that others can learn from?
Mobius: I was too rigid at times. We would focus too much on metrics like price/earnings and price/book ratios, and didn’t pay enough attention to the total picture. We didn’t have the imagination of what could happen over five or 10 years…
In my study of 100-baggers, I found that most were not obviously cheap at the time they began their runs. Almost all of them required that their investors have a deep understanding of the business and a strong belief about their ability to grow. So armed, an investor could hold on through the rollercoaster rides that 100-baggers often give.
A truly great business that can grow many times its current size is not often available at a low price-to-earnings (P/E) ratio. If investing were as simple as buying stocks when they have low P/E ratios, then a lot more people would be rich.
But it is hard to get rich in such a rote way. And most people get stuck on one of their favorite metrics. I’ve done it. Almost everybody has.
Even the Best Investors Make This Mistake
François Rochon, who manages money at Giverny Capital, shared a classic example. At a Google Talk this past December, he reminisced about Starbucks:
I looked at it, I think the first time was in 1994. I thought that was a unique business… When I first tried Starbucks, I said, “Well, these people are on to something, and they’ll do well.” … Howard Schultz was a very ambitious and a very driven CEO. He was very confident that Starbucks could have thousands and thousands and thousands of coffee stands everywhere in U.S. and in the world. I thought it was indeed possible…
But he didn’t buy it. Why not?
The only thing that prevented me to invest 23 years ago was the P/E ratio of Starbucks. I remember it was trading at 40 times earnings. That was way too high for me… but the stock is probably 100-fold since then.
We have all had such experiences.
Another example makes a similar point. You know how Amazon has killed retailers of all kinds? From Sears to Barnes & Noble to Bed Bath & Beyond… all their stock prices have collapsed as Amazon took away sales and profits.
Yet, the shares of Best Buy, the electronics retailer, have outperformed Amazon shares since 2013. (See the chart below.)
I think you would’ve found few people willing to make the bet that Best Buy would stand a chance against Amazon’s onslaught.
Even the story of Amazon is a great dish of humble pie…
Back in 1998, I wouldn’t have touched it. The internet bubble was on and Amazon looked like a very expensive bookseller. After the tech bubble collapsed in 2000–2002, Amazon lost 90% of its value.
How many people, knowing this, would’ve bought Amazon in 1998?
And yet, Amazon has delivered a return of 32% annually since 1998. A $10,000 investment would be worth $2.7 million today—even with that 90% drop!
Prediction is hard. Cause and effect is not easy to pin down. There are so many tangles of connections…
The point here isn’t to ignore valuation. That would be foolish. The point is not to rely on any single metric—of any sort.
The point is to think more comprehensively about the business… and to be humble about what you know.
Editor, Chris Mayer’s Focus
P.S. I recently spoke with a billion-dollar hedge fund manager, whose name I can’t reveal. What we discussed led me to find what I believe is the biggest no-brainer opportunity of all. In the past, similar stocks have shown investors massive peak gains of 95,800%, 63,400%, and even 216,100%. To discover what I was clued into, click here.
We told you in last Friday’s Daily mailbag that world-renowned crypto expert and PBRG’s very own Teeka Tiwari had been receiving hate mail from people upset about the current volatility in the crypto market. The feedback from Teeka’s subscribers continues to be overwhelming…
From Michael Z.: I just wanted to send a short message of support. I was saddened to hear the negative feedback you have been subjected to. I’m a BIG FAN. Yes, I might be down, but I’ve got a hell of a portfolio right now, and that’s because of you.
I’ve been in cryptos since late December, so I haven’t done so great. But I believe in the technology. I was buying and selling without proper knowledge before I joined your service. Now, I’ve learned that it’s all about the long game.
So, keep the support coming. We won’t lose sight on the prize. I’m with you all the way, good or bad, win or lose. You say, “Let the game come to you.” I love the game.
From Luis M.: Hey Teeka, I just wanted to say you’re awesome and your advice is on the next level.
From Nicole W.: Teeka and the team, thank you so much for all the hard work and time you have invested in the crypto portfolio. I started my crypto investments last May and have been through some roller coaster rides along with you.
The perspective Teeka shares in his video updates is so helpful to me. I know that you’re not obligated to spend so much time and effort coaching and reassuring your subscribers… But the fact that you do shows how much you want us all to enjoy the financial rewards to come if we have patience, position-size correctly, and keep an eye on the big picture.
I have learned a great deal from you. And the value of my portfolio overall has increased despite the ups and downs.
From Greg G.: I guess you can say I’m somewhat new, even though I joined Palm Beach Confidential in October. I believe I get it. Don’t worry, no hate mail from me. Your advice is appreciated.
From Tom W.: Teeka, I enjoy your updates and how you describe your strategy with charts. As they say, “a picture is worth 1,000 words.”
I missed a fortune in the early ’90s on internet stocks… And I’m not about to miss it this time. I’m paying very close attention to your observations and intent, as I’m very confident it will soon pay enormous dividends.
Ignore the hate mail, as I can tell they don’t have a clue. Keep up the effort, I’m looking forward to the payoff. Thanks again for all your hard work, confidence-building, and keeping us on the right track.
From Chuck C.: Teeka, you’re doing a great job! No worries here! Thanks for keeping us updated. The writing is on the wall for what’s about to happen in the crypto market. Maybe all the haters will sell their coins and go home and miss the ride up! I’m buying more!
From Kevin L.: Sorry to hear Big T is getting a lot of hate mail. I just want to say since I’ve been a subscriber, you have been very clear about your investment strategies in the crypto space. You provide the advice, but the investment decisions we make are up to each one of us. I greatly appreciate your advice and simply want to thank you for all you do. You’re doing an awesome job.
From Shawn S.: It bothers me that Teeka is getting so much hate mail. He does NOT deserve that. I don’t need the handholding he does because I follow his advice on position sizing consistently… But I greatly appreciate the attitude and the kindness he shows in those video updates.
I practice his mantra of “Let the game come to you” across ALL markets… not just the crypto market. Please make sure Teeka sees this. I want him to know that he has subscribers who truly understand and appreciate both his work and him as a person.
From George S.: Big T, sorry that you’re getting uncivilized emails. I am part of your silent majority. We are the believers in your strategy and research. We are behind you 100%. Keep up the good work.
From Jordan B.: Teeka, I just wanted to tell you how much I appreciate your advice, perspective, and reassuring words. I am 44 years old and I’ve truly had my head in the sand as the world moves on around me.
I’ve been focused on my businesses, but haven’t taken the opportunity to invest in other great ideas throughout the years. I’m not going to make that mistake again.
I came on board with you in summer 2017, and rode the market up and back down. I can’t tell you how much I look forward to your videos and updates. I’m too busy to become an expert in this field, so I am truly thankful I found you to do the homework for me.
Thank you for holding our hands through the tough times, and thank you for your service. I’m convinced that one day I’ll look back and say that your financial advice was the most sound I ever received.
If you want to send questions or comments to Teeka or his team, click here to contact us.
Have you heard about “Section 20001” of the new tax law?
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