What I Learned from Chris Mayer

Chris Mayer's 100-Baggers: Core Insights into Mayer's Wisdom

Oct 29, 2024

Earlier this year, I dove into the book 100 Baggers by Chris Mayer and it completely changed how I think about investing. Mayer’s philosophy of “buy right and sit tight” is spot-on for anyone looking to grow their capital by investing in great businesses and holding them for the long term. It’s the ultimate strategy for quality investors aiming for life-changing returns.

On top of reading the book, I’ve listened to all of Chris Mayer’s podcast appearances, and every time, his insights reinforce the same powerful message: finding 100-baggers is not just about picking the right stocks, but also having the patience to let them grow. I recommend listening to his appearance on the Investing By The Books podcast by Redeye, it’s quality.

In this post, I’m excited to share some of the most valuable lessons I’ve picked up. If you haven’t read the book yet, do yourself a favor and get a copy. And for those who have, consider this a refresher on Mayer’s and Thomas Phelps’ wisdom!

I’ll be going over the key lessons I’ve picked up from diving into Chris Mayer’s insights:

The (100-Bagger) Investment Philosophy
The Coffee-Can Portfolio
Key Insights for Finding 100-Baggers
The Importance of High Returns on Capital
The Importance of Good Management
The Importance of a Competitive Advantage
In Case of the Next Great Depression
The 100-Bagger Essentials

#1 The (100-Bagger) Investment Philosophy

The idea behind 100-Baggers is rooted in a study by Thomas Phelps, which he detailed in his book "100 to 1 in the Stock Market." I’ve also read Phelps’ book and I’ll start with some key takeaways about investing that laid the foundation for this concept of 100-Baggers:

It’s not just about finding good stocks, it’s about holding onto them. The magic comes from buying the right ones and sticking with them.
You need to know the difference between being busy and being productive. As Phelps put it, “A lot of shavings don’t make a good workman.” Mayer once said that it may not always seem like he's being productive because he doesn’t make many changes to his portfolio. However, he is productive by learning as much as possible about his holdings, potential risks, and their competitive position.
Focus on the company, not the stock price. Keep your eyes on fundamental things like earnings, returns on capital, and revenue growth—those are what really matter.
Don’t waste time trying to time the market. When the market looks bad, it can cloud your judgment and make you miss out on great opportunities. This was also Francois Rochon’s main point!
Invest in businesses that improve people’s lives—new products, better solutions, faster or cheaper ways of doing things. Find companies that are creating real value for the future.
While “buy and hold” is solid advice, it doesn’t mean you should just forget about your stocks. The goal is to avoid unnecessary actions, not to ignore them altogether.
Only sell when it’s clear you made a mistake. Selling too soon is basically admitting you got it wrong, and the quicker you sell, the bigger the mistake was in the first place.

Chris Mayer takes these principles and shows us how to spot the winners. The truth is, investing is more of an art than a science. If it were all about crunching numbers, statisticians and mathematicians would all be millionaires.

#2 The Coffee-Can Portfolio

Mayer is also a big fan of The Coffee-Can Portfolio, a concept introduced by Robert Kirby, which is pretty straightforward: find great stocks, stash them away, and leave them alone for 10 years. It’s low-cost, easy to manage, and best of all, it stops you from making impulsive decisions like obsessing over stock prices, constantly buying and selling, or panicking over bad news. It forces you to think long-term. The key? Don’t put anything in your “coffee can” unless you believe in it for the next decade.

So, why don’t more people hold onto their stocks? It’s because we’re trained to focus on short-term stock prices instead of the actual business performance. But if you look past the noise—skip the news, market trends, and economic forecasts—you’d sell way less. Take Pfizer, for example: from 1942 to 1972, it made 141 times your money, even though it had some tough years in between.

What can we learn from the concept? The Coffee-Can Portfolio teaches us the power of long-term thinking and the importance of staying focused on the fundamentals of the businesses we invest in. By ignoring short-term market fluctuations and resisting the urge to constantly trade, we allow our investments the time they need to truly grow. The idea is that if you’ve chosen strong companies, they’ll weather the ups and downs and thrive over time. In today’s world, where we’re bombarded with information and market noise, the Coffee-Can approach reminds us to step back, trust in the long-term value of what we own, and let compounding do its work.

#3 Key Insights for Finding 100-Baggers

Hunting for stocks that can grow 100x isn’t about quick wins or guessing the market’s next move. Instead, it’s about spotting the qualities that make companies thrive over the long haul. Chris Mayer’s insights show how to do just that with three main takeaways: the power of growth engines, the need to avoid common traps, and the mindset shift that makes it all possible. If you’re ready to play the long game, these are the essentials for finding the next 100-bagger.

Twin Engines

One of the major takeaways from Chris Mayer's work is that the biggest stock gains often occur when two things happen in tandem: earnings growth and a rising price-to-earnings (P/E) ratio. A stock can stay in the dumps for a while, but when its earnings start to grow, it can quickly transform into a great investment. Even if the P/E ratio looks high after a price increase, that doesn’t necessarily mean it’s time to sell.

Take MTY, a restaurant chain, as an example. From 2003 to 2013, MTY’s earnings grew 12.4 times, while its P/E ratio increased from 3.5x to 26x. This combination of rising earnings and valuation is what Mayer calls the “twin engines” of 100-bagger success.

SQGLP

Achieving a 100-bagger takes time—often more than a decade—and it requires companies with specific characteristics, the SQGLP framework:

S: Small size – Smaller companies have more room to grow. Chris Mayer did say he found this one less important nowadays. However, a 100-bagger is easier for a $500 million company than a $10 billion company of course.
Q: Quality – Both the business and its management need to be top-notch. Invest with management teams that have skin in the game—those who own a lot of stock.
G: Growth – Consistent, strong earnings growth is key.
L: Longevity – The company must sustain its quality and growth over time. It needs to have competitive advantages to fend off competition, and have enough growth runway left to take advantage of it.
P: Price – The stock needs to be bought at a price that sets up strong future returns. Buy right and sit tight. A common trap is overpaying for growth stocks. Just because a company is growing doesn’t mean you should pay any price.

To land a 100-bagger, you need vision to spot potential, courage to invest, and most importantly, patience to hold. The challenge lies not just in picking the right stocks, but in sticking with them through the inevitable ups and downs.

Right Mindset (Patience!)

To achieve 100-bagger returns, you need to shift your mindset. You won’t care about what the Federal Reserve is up to, and you’re not going to buy a stock because the chart looks good. It’s about playing the long game.The idea of “time arbitrage” is powerful. If you can think a year ahead, you’ll find stocks that are cheap now because everyone else is too focused on the next quarter or two. Sometimes, just having patience puts you ahead of the crowd.

Don’t Chase Returns

A big mistake investors make is chasing returns. While mutual funds might average 13.8% returns annually, the average investor only earned about 7%. Why? Because they pulled their money out when things got rough and jumped back in when funds had already performed well. In other words, they were always reacting to the short term. Mayer’s advice? Stop comparing yourself to the S&P 500 or the broader market—focus on the long haul. The best investors underperform the market 30-40% of the time, and that’s okay.

Don’t Get Bored

Why do people buy and sell stocks so much? Why can’t they just hold on? The answer is simple: they get bored. Instead of sticking with good companies, some turn to penny stocks or risky investments just to feel like they’re “doing something.” Remember, it’s not about timing the Fed or reacting to every piece of news—Buffett himself said he wouldn’t change his strategy even if he knew the Fed’s policies for the next two years.

Watch Out For These

Be cautious with management. Read transcripts, don’t just listen. Look for disappearing initiatives over several quarters. If the Q&A feels staged, it might be a red flag.
Don’t rely on boards—they often aren’t as helpful as you’d think.
Investment banks and market-research firms are often incentivized to sell financial products, not give you the best advice. Stick to objective data like actual sales trends.
When investing overseas, remember Phelps' wisdom: you may just be swapping visible risks for ones you can’t see.
Be wary of trendy, “hot” sectors. Companies that are created just to satisfy investors’ excitement rarely deliver.
Stay away from businesses that are too complicated to understand.

Ignore Forecasters

Analyst estimates are wrong about 40% of the time. People tend to predict a future that’s too similar to the present, but reality is far more unpredictable. Graham put it well: most people spend their time trying—and failing—to predict things they can’t possibly know.

Keep It Simple

Sosnoff’s Law says: “The thicker the files, the worse the performance.” The best ideas are often the simplest. If you’re having to work too hard to justify an investment, it might be time to reconsider. Simplicity wins, and your investments should be obvious buys.

Don’t Be Attached to Ideas

It’s important to stay flexible in your thinking. Be ready to change your mind and poke holes in your own ideas. The worst thing you can do is cling to a fixed belief that no longer holds up. Be wary of abstract predictions about how the world might change—they often lead you astray.

Forget About Inflation

When it comes to inflation, 100-baggers are your best bet. Forget gold stocks or natural resources companies. Asset-heavy businesses tend to earn low returns and struggle to grow during inflationary times. As Buffett pointed out, businesses with a lot of tangible assets often have to reinvest everything just to keep up, leaving little for growth.

The winners in a world of monetary depreciation are asset-light companies—those that can raise prices easily and don’t need to invest heavily in physical assets. These are the businesses that thrive when inflation hits.

#4 The Importance of High Returns on Capital

When looking for potential 100-baggers, high returns on capital are essential. Metrics like Return on Equity (ROE), Return on Capital Employed (ROCE), and Return on Invested Capital (ROIC) help measure how efficiently a company uses its resources to generate profit. Each of these metrics provides a unique angle, but they all point to one thing: how well a company is turning invested capital into growth.

Why High Returns on Capital Matter

A company that generates high returns on capital is essentially making more profit with every dollar it invests. As Charlie Munger famously noted, “If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you’ll end up with a fine result.” High returns don’t just benefit the company in the short term—they create a foundation for compounding growth over time. Companies with strong returns on capital are better positioned to reinvest their profits effectively, creating a cycle that can drive substantial value for shareholders.

Smart Capital Allocation

It’s not just about generating high returns on capital but also about how a company reinvests those returns. A high return without opportunities for reinvestment can only go so far. Great companies don’t just generate profits—they allocate them wisely, putting them back into the business in ways that continue to yield high returns. When management consistently reinvests profits into areas that further boost growth, they can create lasting value. For instance, companies with high returns that buy back stock without corresponding growth can miss out on building shareholder value long-term.

Finding the Right Companies for Long-Term Growth

Ultimately, the goal is to identify companies that achieve high returns on capital and have the opportunity to reinvest at those same rates. Whether it’s through acquisitions, expanding into new markets, or innovating their product lines, the best companies put their profits to work in ways that grow the business and keep generating strong returns.

So, when searching for potential 100-baggers, focus on companies with consistently high returns on capital and management that knows how to reinvest wisely. High returns and effective reinvestment are the ingredients that make compounding—and substantial long-term growth—possible.

#5 The Importance of Good Management

Owner-operators with Skin in the Game

Another key insight is the importance of investing in companies run by owner-operators—those who have significant personal stakes in the business. Managers with "skin in the game" tend to make smarter, long-term decisions because their personal wealth is tied to the company’s success. They avoid risky moves and focus on steady, sustainable growth.

This chapter kicks off with a great quote from Sosnoff’s “Silent Investor, Silent Loser”:
“My experience as a money manager suggests that entrepreneurial instinct equates with sizable equity ownership… If management and the board have no meaningful stake in the company – at least 10% to 20% of the stock – throw away the proxy and look elsewhere.”

In other words, companies where the CEO or founder has a big personal stake are usually the ones worth your attention. Owner-operators (founders or executives with significant equity in their own companies) can be a sign of future success. They tend to outperform the competition because they have skin in the game.

Here’s why owner-operators stand out:

CEOs who are also founders invest more in research and development and are focused on long-term shareholder value instead of making risky acquisitions.
Family-run companies often ignore the pressure of quarterly earnings reports and focus on building value over the long haul, which helps them outperform.

Sosnoff also mentions how having only a token amount of ownership leads to an anti-entrepreneurial mindset. Basically, if management doesn’t have much of a personal stake, they’re less likely to take risks or think like entrepreneurs.

The idea is simple: you want to invest alongside the people running the business. If they’ve got their own money on the line, it aligns their interests with yours.

What Are The Best CEOs?

The best CEOs aren’t just good at running businesses—they’re great at investing. As a CEO, you’ve got five main options for what to do with your company’s money:

Invest in your existing business
Buy other companies
Pay dividends
Pay off debt
Buy back stock

And when it comes to raising money, you’ve only got three real choices:

Issue stock
Issue debt
Use the business’s cash flow

In The Outsiders, Thorndike explains that CEOs need to think of these options as a toolkit. The decisions they make about how and when to use these tools ultimately determine the long-term returns for shareholders. Notice there’s nothing here about having a great product or being in a booming industry. The CEOs Thorndike studied made their fortunes in all kinds of markets—whether they were growing or shrinking, whether in media, manufacturing, or financial services. The industry didn’t really matter.

What set these “Outsider” CEOs apart was that they shared a few key beliefs:

Capital allocation is the CEO’s most important job.
What matters is increasing value per share, not just growing the company.
Cash flow, not earnings, is what truly determines a company’s value.
Decentralized organizations unleash entrepreneurial energy.
Thinking independently is crucial for long-term success.
Sometimes the smartest move is to just hold onto your own stock.
With acquisitions, patience is key—though bold moves are sometimes necessary.

These CEOs were old-school, with values that might seem out of place today, and they weren’t afraid to challenge popular beliefs. They kept things simple, ignored the herd, and always made sure their interests aligned with those of their shareholders.

Even though each of these “Outsiders” approached things a bit differently, they all shared some common strategies. They avoided paying dividends, made disciplined (and occasionally big) acquisitions, used debt carefully, bought back a lot of stock, minimized taxes, ran decentralized businesses, and focused on cash flow over net income.

#6 The Importance of a Competitive Advantage

One of the key concepts in investing is the idea of competitive advantages—or what’s often called a "moat." A company with a strong moat can fend off competitors and maintain high returns for a long time. That’s a critical ingredient for finding 100-baggers, the kind of companies that can multiply your investment over time.

There are different types of moats:

A strong brand that people trust.
High switching costs, meaning it's hard for customers to leave.
Network effects—the more people use it, the more valuable it becomes (think Facebook).
Cost advantages, where a company can produce something cheaper than everyone else.
Size, where being the biggest player in the game has its perks.

But just having a great product or great management isn’t enough to create a moat. Moats are always in motion—they either grow or shrink over time. As an investor, your job is to figure out which direction it’s headed.

Michael Mauboussin, an expert on moats, pointed out something interesting: even in the best industries, some companies destroy value, and in the worst industries, some companies still create value. In other words, industry isn’t destiny. You don’t need to avoid certain industries altogether, but more stable industries might offer better chances for long-term success. In contrast, unstable industries come with big challenges, but also big opportunities.

Moats help companies resist mean reversion, which is the natural force in markets that tends to pull all returns back to average. But some companies continue to outperform and stay ahead. What keeps them going? High gross profit margins. Companies with high gross margins tend to stay there, and that’s one of the best indicators of long-term performance.

Gross margin tells you how much a company earns compared to the cost of producing its product. A company with strong gross margins is usually in a good spot, but keep in mind that some great companies—like Amazon—might have lower gross margins because their value comes from other things, like selection and convenience.

A few other points to keep in mind:

The difference between gross margin and operating margin comes down to operating expenses like sales, general, and administrative costs (SG&A). These expenses are volatile, but gross margins tend to be steady.
Bigger companies are often better at finding efficiencies in their operating expenses, which helps them maintain high returns longer than smaller companies.
A company’s track record of high performance is a strong indicator. Competitive advantages don’t vanish overnight.

In short, having a moat is great, but real moats are rare and not always easy to spot. Look for clear signs—like strong gross margins or high returns on invested capital (ROIC). If you’re not sure whether a company has a moat, you might be talking yourself into it. The higher the gross margin compared to the competition, the better your odds of finding a winner.

#7 In Case of the Next Great Depression

Keep this chapter handy when the market crashes.

There are three types of stocks that probably won’t bounce back:

Stocks that were way overpriced to begin with.
Stocks that suffer permanent damage.
Stocks hit by massive dilution during the crash, where shareholders couldn’t protect themselves.

Here’s a reassuring quote from J.M. Keynes (1938):
“I feel no shame at being found still owning a share when the bottom of the market comes. It is not the duty of a serious investor to constantly consider whether he should cut and run on a falling market. From time to time, it is the duty of a serious investor to accept the depreciation of his holdings with equanimity.”

Keynes, despite being a brilliant investor, saw his net worth drop over 80% during the Great Crash. He learned that successfully timing the market requires “abnormal foresight” and “phenomenal skill.” In time, he realized that holding onto stocks “through thick and thin” and letting compounding work its magic was a smarter approach. His motto became “Be quiet”—in other words, ignore the noise and trust the long-term.

Here’s what Keynes ultimately believed:

Carefully select a few investments that are cheap relative to their long-term value.
Hold these investments through thick and thin until they either pay off or prove to be mistakes.
Keep a balanced portfolio exposed to a variety of risks, even if individual holdings are large.

Keynes also said that “slumps are experiences to be lived through and survived with as much patience as possible.” Instead of trying to shift in and out of the market, take advantage of the fact that individual stocks sometimes become irrationally cheap during a crash.

Floyd Odlum was another investor who thrived during the Great Depression. In 1933, when everything seemed to be falling apart, Odlum said, “I believe there’s a better chance to make money now than ever before.” He used his cash to buy companies trading below the value of their assets, liquidated them, and repeated the process. The lesson here: don’t be afraid to hold onto cash until you find those golden opportunities.

Of course, there’s no guarantee your stock won’t drop from $16 to $1.50, but you can improve your odds by sticking with companies that are in good financial shape and have manageable debt. Stocks that don’t recover from bad times usually have weak balance sheets.

The takeaway from the Great Depression is simple: “Never cry over spilled milk. Only the future is important,” as one investor put it. Chris Mayer had a similar experience in 2008. He saw valuations that were too good to pass up. The key lesson from that time? Having cash is critical. If you have cash during a crisis, you’re in control.

Oh, and one last point: don’t use too much debt—if any. Benjamin Graham’s big mistake in 1930 was using leverage. It’s a lesson investors seem to need to relearn in every cycle.

#8 The 100-Bagger Essentials

Chuck Akre, who has achieved two 100-baggers, keeps his approach simple with what he calls the "three-legged stool":

Businesses that have historically compounded value per share at very high rates.
Skilled managers who treat shareholders as partners.
Businesses that can reinvest their free cash flow to keep earning above-average returns.

Akre believes the third leg is the most important. In one of his letters, he wrote, “Reinvestment is the single most critical ingredient in a successful investment idea.” The key is for a company to not only generate high returns on capital but to take those returns and reinvest them repeatedly. This is where the magic of compounding happens. If a company can reinvest at high rates instead of paying out dividends, you’re looking at a compounding machine that can potentially become a 100-bagger.

Let’s break down the 10 essential lessons from this book:

Aim High
Forget small wins or dividends—focus on stocks with the potential to multiply your investment 100 times. Look beyond short-term gains for the real long-term potential.
Focus on True Growth
Growth isn’t just about sales; it’s about profitable, value-driven growth. A company increasing sales but diluting shares or reducing profitability isn’t ideal. Look for businesses expanding sustainably and reinvesting at high returns.
Quality Over Low Multiples
A lower P/E can be attractive, but don’t overfocus on it. Paying up for high-quality companies with consistent returns on capital can still lead to great long-term results.
Growth + Value = Success
This “twin engine” approach combines finding solid companies at reasonable prices, allowing growth without needing astronomical earnings.
Seek Economic Moats
High returns on capital last when a company has a protective moat—something that gives it an edge over competitors.
Smaller Companies Have Potential
Smaller companies often have more room to grow, but don’t overlook larger ones entirely. The growth potential just tends to be higher among the smaller players.
Look for Owner-Operators
CEOs or founders with significant ownership usually think long-term, with their personal wealth linked to the company’s success. It’s a strong indicator of commitment.
Patience Pays: The Coffee-Can Strategy
Big returns take time, often decades. Adopt a coffee-can approach: hold onto your top stocks for years to let compounding work.
Ignore the Noise
Don’t let media or market swings influence you. Great businesses survive the noise, and downturns often hide incredible growth stocks.
Be a Reluctant Seller
Once you find a great company, hold onto it. Sell only if you’ve made a mistake, the stock no longer meets your criteria, or you find a significantly better opportunity. Often, the best returns come from doing nothing at all.

As an old investor once said, “You make more money sitting on your ass.” So, learn to buy right and sit tight.

Thanks again for reading. If you want more Chris Mayer: buy his books! If you'd like to discuss anything, just message me on Substack or on X (@MindfulCompound). I’d love to hear from you! Thanks again and see you next time.

Luuk

Disclaimer: This analysis is not intended as investment advice but as a personal opinion and can serve as a supplement to your own research. The information is explicitly not intended as advice to buy or sell certain securities or securities products, but to provide an overview of the underlying company/companies. You are solely responsible for the decisions you make regarding your investments.

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