Chris Mayer is the Investment Director of Bonner & Partners, a financial research firm. He is the author of Invest Like A Dealmaker: Secrets from a former banking insider, World Right Side Up: Investing Across Six Continents and, most recently, 100 Baggers: Stocks that Return 100-to-1 and How to Find Them.
Five Good Questions:
What are some of the key ingredients that might point to a 100x investment return? Do we just have to depend on luck and strike oil or benefit from a big pharmaceutical drug approval, or is there any skill involved? When I was teaching at UC Davis’s MBA program, we did a study where we examined the performance of investing gurus vs. various value investing studies (Tweedy Browne, Magic Formula, What Works on Wall Street etc.). It was amazing how the studies trounced even the pros. One reason is likely liquidity, the bigger pros couldn’t get into smaller investments that the study did, which could constrain returns. But another hypothesis I had was that because the studies are so mechanically driven and only sell after certain time periods, perhaps the studies participated in some of the market irrationality to the upside for a given stock. A guru would have taken advantage of the downside irrationality of a low P/E, but then sold out before it ever got to an extreme high P/E. How does this fit into your “coffee can” approach. Your book is full of off-the-beaten path stories, including a tontine. What the hell is a tontine? ;) We all know about Graham and Buffett, but what made Keynes such a great investor? Buffett has a great article from way back in the day called “How Inflation Swindles the Equity Investor.” It’s early Buffett, so it’s a little technical, but I thought you did a great job of simplifying it in your book and explaining how light-asset businesses are a better bet in inflationary environments. Can you walk us through your reasoning?