Recognising 100-baggers is a crowning achievement for any investor
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I recently listened to a conference call by an investment manager I hold in high regard. His investment style can be best described as “high quality”. This is in contrast to the traditional “value” manager who searches for unloved stocks the market has pushed to unjustifiably low multiples of earnings or book value. It is also in contrast to the typical “growth” manager, who is prepared to pay high multiples to buy (often less well-established) companies that are growing their revenues or earnings (better yet, both) at very high growth rates.
The high-quality manager typically invests in high-quality businesses with durable franchises that grow their revenues dependably at GDP-plus rates and, due to operational leverage, their operating profits at a slightly quicker rate than this.
This style has delivered very well for the fund’s investors due to the power of the compounding effect on earnings over sufficiently long periods. Unilever was held up as a good example of this compounding effect, and we can only agree that its past compounding power has often been underestimated.
I was, however, quite surprised when he referenced the excellent (though US-focused) book, 100-baggers, by Christopher Mayer, as justification for continuing to hold some of the businesses (such as Unilever) that have done so well for him. For those of you that are not familiar with this term, a 100-bagger is a stock that has increased 100 times from when one originally bought it. Needless to say, finding a stock that manages to do this represents the holy grail for any investor.
An example of an SA 100-bagger would be Naspers. While Koos Bekker’s investment acumen had already been demonstrated through his involvement in the founding of MultiChoice and MTN, it was Naspers’s $32m investment in Chinese internet company Tencent that catapulted it into the global “big league”. Naspers’s market cap was a “mere” R5bn when it invested in Tencent in 2001. Now its market cap is more than R1.3-trillion.
Another example of an SA 100-bagger would be Capitec Bank. In the case of Capitec, its share price was decimated in the small banking crisis of 2002/2003 and eventually troughed at about R2 per share. Today, after its successful expansion strategy premised on zero-fee banking and lending to the formerly unbanked, Capitec’s share price is sitting at more than R8500. Capitec’s market capitalisation recently surpassed that of Nedbank, which was founded in 1831.
There are ...
The high-quality manager typically invests in high-quality businesses with durable franchises that grow their revenues dependably at GDP-plus rates and, due to operational leverage, their operating profits at a slightly quicker rate than this.
This style has delivered very well for the fund’s investors due to the power of the compounding effect on earnings over sufficiently long periods. Unilever was held up as a good example of this compounding effect, and we can only agree that its past compounding power has often been underestimated.
I was, however, quite surprised when he referenced the excellent (though US-focused) book, 100-baggers, by Christopher Mayer, as justification for continuing to hold some of the businesses (such as Unilever) that have done so well for him. For those of you that are not familiar with this term, a 100-bagger is a stock that has increased 100 times from when one originally bought it. Needless to say, finding a stock that manages to do this represents the holy grail for any investor.
An example of an SA 100-bagger would be Naspers. While Koos Bekker’s investment acumen had already been demonstrated through his involvement in the founding of MultiChoice and MTN, it was Naspers’s $32m investment in Chinese internet company Tencent that catapulted it into the global “big league”. Naspers’s market cap was a “mere” R5bn when it invested in Tencent in 2001. Now its market cap is more than R1.3-trillion.
Another example of an SA 100-bagger would be Capitec Bank. In the case of Capitec, its share price was decimated in the small banking crisis of 2002/2003 and eventually troughed at about R2 per share. Today, after its successful expansion strategy premised on zero-fee banking and lending to the formerly unbanked, Capitec’s share price is sitting at more than R8500. Capitec’s market capitalisation recently surpassed that of Nedbank, which was founded in 1831.
There are ...