[Jack’s note: Another amazing, free, non-sponsored Masterclass from my buddy Kevin. I truly recommend his Substack!]
A reminder of what is happening this week at The Stock Insider and the last few days to get a lifetime membership. Ever:
My name is Kevin
I hunt for 100-baggers. ⬇️
Why?
Companies that return a million for a 10,000 dollar investment. They are few and far between. You probably know some of them.
Apple
Nvidia
Berkshire Hathaway
Why choose 100-baggers as a goal in your investment strategy?
There are three reasons.
Imagine you go hunting, would you rather hunt a rabbit, or a magical monster? What excites you the most? For me it's the latter. I need something that excites me in the markets.
I’ve always been a straight-A shooter, meaning I aim for the highest. What happens if I nail only a 10-bagger? I won’t be crying, that's for sure. Setting the bar high can still be profitable.
A shift in mindset. You’re thinking in doubles and baggers, not in percentages. You’re thinking in years, not days. You’re looking at endurance and resilience. But most importantly, you’re looking for growth that can be sustained for a very long time.
Speaking of monsters, here’s the chart of a company you know:
At this point, Monster is a 1400-bagger since 1992 (36%/year)
If you’ve invested and held the stock since then, then I applaud you. Honestly, few people knew of the company back then. It got onto the investing radar in 2005.
What if you had bought it in 2005?
Yep, a 160-bagger in 20 years or a 26% CAGR.
And what did the P/E look like in that period?
Here’s the P/E chart with the return if you had bought at the end of 2004, 2009 and 2015. ⬇️
The P/E is a lousy metric for a company that can grow fast AND long. But getting in early matters. Over the last decade, monster is not a real monster anymore.
Past data?
Two books have been written on 100-Baggers. In general, they develop slowly. Data from 1964 to 2014 for US stocks gives the following distribution:
Most evolve within a period of 16 to 45 years. Now that’s a long time. It all depends on the growth rate:
Some have gone a lot faster:
Even GameStop was a 100-bagger for a brief moment in time. But let’s not reminisce.
From a sector point of view, you need something that can scale, ideally worldwide. Some examples are pharma, software, and tech in general.
How?
There’s a “secret” formula.
It’s simple and hard at the same time. The formula looks like this:
2 6.6 = 100
Find a company that can double 6.6 times. I’ve expanded on the formula and posted it on X:
You buy right, find a company that you think can double
Once it doubles, you ask the same question again
You repeat this 5 more times.
Now you know where our slogan comes from:
The hard part is not the buying. There are opportunities out there. The hard part is 2-fold:
Will the company keep performing over such a long time?
Will you be able to hold on?
Holding on for dear life
Each time you hold on, you make an investment decision. But holding on is hard.
Most companies experience significant drawdowns over long periods.
The easiest way: You forgot it even existed.
➡️ The so-called coffee-can portfolio where companies are bought and then lost to be recovered decades later. That’s not an investing strategy.
So let me tell you a story of a man…
The man that never sold
Meet Jason Hirschman. He has the coolest bio on X.(IMO)
Don’t let that bio fool you. Jason is a full-time micro and small cap investor. He started out as a small business owner interested in investing and then managed to hunt down a 1000-bagger. He now manages his own family office with an 8-figure portfolio.
His slogan says it all: “Seeking undiscovered future high ROIC companies.”
So what happened?
In 2013, he managed to hunt down a company called XPEL. As Jason so eloquently retells it: “I didn’t think much of the company at first. I thought they sold glorified car condoms for the rich.” (They sell protective films you wrap around your car to protect it)
But after further research one thing that struck him was that demand was high despite low marketing efforts. People wanted this product!
He gradually built his position and started buying.
Then disaster struck. 3M filed a lawsuit for a patent breach.
Jason didn’t sell. He tried to understand what was happening. He dug deeper into the company. With a friend, they managed to get a sample of the wrapper, and sent it to a laboratory for chemical analysis. Based on the results, and by comparing it to the patent of 3M, they concluded that XPEL had a strong case in court.
He added to his position.
A year later, a settlement was reached between 3M and XPEL.
And today? He still holds about 1.3M shares, which are worth about 36 Million USD.
The road to get there was a rollercoaster. Here are the drawdowns on the way. ⬇️
Multiple 50% downturns and an 80% downturn followed the 3M lawsuit.
The key takeaways:
You need to build conviction to hold on: Know the company better than anyone
The higher the quality of the company, the less you should sell based on valuation
Always build your positions. When your conviction grows, your position can too
The Peter Lynch Playbook
Our investing strategy is based on the Peter Lynch playbook.
Peter Lynch coined the term multi-bagger. He’s famous for buying fast-growing companies. But in reality, he bought a lot of things.
Imagine you only hunt for that magical monster, that 100-bagger. You need to make sure you don’t starve while doing so.
Don’t confuse the destination (nailing a 100-bagger) for the journey (meeting your hurdle rate).
Just like Lynch, we look for “Blueprints”, specific set-ups that increase the chance of success. It looks like this:
The small fast grower blueprints are the multibagger potentials. We aim to hunt for 50% of them in our portfolio.
The other are opportunities we meet while hunting for that 100-bagger.
After all, a man needs to eat.
Let’s go over them:
Asset plays: The company has properties that are worth a lot more than has been booked on the balance sheet. The market does not take it into account
Turnarounds: A phoenix rising out of his ashes. Turnarounds need to be structural and ideally paired with divestments.
Spin-offs: Spin-offs are interesting when there is forced selling in the market. Always look for forced sellers.
Big Downturn: Bigger companies that are in a temporary downturn for some reason.
Net-Net: Only buy growing net-nets, or your money could get stuck in no-man's land.
An example of a past Big Downturn that was profitable: ADYEN (Ticker: ADYEY) ⬇️
A current Big downturn that might be interesting? Evolution AB (Ticker: EVVTY in the US)
The past metrics of this company are outrageous.
But the market doesn’t seem to think it will continue. Down 40+% over the year. We are watching. 👀
A structural turnaround that keeps performing: Innovative Food Holdings (Ticker IVFH)
Conclusion
In theory it’s simple. Buy right and hold on. In practice it’s hard, in particular the holding on.
We’ve covered why and how you should hunt. But there’s a lot more where this came from. Use the link below and download the 100-bagger checklist for free.
May the markets be with you, always!
Kevin
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