I recently finished re-reading Chris Mayer’s ‘100 Baggers’, an updated study in the spirit of Thomas Phelp’s iconic book ‘100 to 1 in the Stock Market’, first published in 1972. Without question, it’s become essential reading for investors and I encourage others to dive into its simple and easy to digest wisdom.
It impressed upon me some lessons I had blatantly forgotten since first reading it, chief among them that to catch a 100 bagger, you had to “buy right, and hold on” through all the gyrations of the market.
I’ve been stewing on this for a month or so now, and it reminds me of Buffett’s 20 slot punch card – the hypothetical scenario he has often taught students – that their investing records would be vastly improved if they were only ever allowed to purchase 20 stocks over their lifetime.
Narrowing one’s selection to such a finite number forces investors to assess every aspect of the business’s prospects with a much more critical eye; you simply have to get it right, or the next 19 you select have to make up for it.
The analogy of “buy right, and hold on” is not far off comparing film to digital photography either, insofar as those who learnt to shoot on film, myself included, understood that each shot was a precious (and expensive) commodity that needed to be carefully framed and considered. When digital cameras first hit our shelves – which incidentally I was there to see, being a photographic salesman at the time – the proliferation of terrible shots and wannabe photographers established itself almost overnight. Socks and sandal boomer dads with grotesquely large SLRs around their necks picking up their 300+ photographic prints were suddenly commonplace.
The parallel can be handsomely drawn with the abundance of free brokerage platforms popping up over the past few years. With no tangible cost (other than CGT) to buying and selling, investors become less capable of ‘framing the perfect shot’ and shoot too frequently at anything that catches their eye.
Inevitably, most of these shots are either over-exposed, poorly framed, mistimed, blurry or all of the above.
I’m guilty of this mindset of late, as are many. But as thoughtful, long-term investors, we need to spend time properly framing our shots, asking ourselves if this really is a beautiful waterfall in a pristine wilderness, or just a pond in our backyard covered with algae.
Getting the right shot requires timing, patience and experience. Even the most blindingly beautiful sunset, when framed with the not-so-beautiful tin roof of your backyard shed, will look like a miscalculated mess. The quality of light in a morning fog can shift in mere seconds, rendering a once perfect scene devoid of any colour and life. It’s critical to recognise the perfect shot when it presents itself and to swing big. Preparation is the principal factor here.
Our mindsets should harken back to the film era, when each click of the shutter was perilous, our ammunition finite. But buying right, no matter hard, appears to be the easy part when it comes to 100 baggers. Who among us doesn’t regret selling winners at 3, 4 or 5 bags, that went on to do 10, 20, 50+?
The only analogy here that makes sense to me is that to get the best pictures, you have to be willing to travel to the most remote places that no one else is willing to go. And too few of us are willing to go there.
Ben Stevens is a Melbourne-based private investor and Director of design studio Blendid. He specialises in working with passionate founders from innovative companies to establish their brand, find their voice and ultimately drive results.
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