S it possible to invest and make 100 times your capital in one lifetime? In the book “100 Baggers: Stocks that Return 100 to 1 and How to Find Them,” Christopher Mayer tells us how. It was inspired by a similar 1970s book entitled “100 to 1 in the Stock Market” by Thomas Phelps. Both books have listed companies that returned 100 times one’s initial investment and includes the time it took to get there. With different sample periods but similar results we could say these opportunities have always been present.

Below is a summary of the principles from the book:

You have search for them. Rather than simply looking for quick trades, focus on the long-term business potential of an investment. Knowing what to look for should help you get in the right direction.

Growth is important. A good growth is one that comes from earning power and not from onetime gains. A company might report a fall in earnings per share with the earnings power intact. Some earnings decrease could be caused by cyclical factors or rare events such as a pandemic. These decreases should prove temporary and should not affect earnings power in the future.

Choose lower multiples. Do not overpay. Although you would not probably find a high-quality growth company at a dirt-cheap price, you might be able to buy it at a decent price. One way to check this is the PEG ratio. It is P/E divided by the EPS growth rate. Anything below one is cheap. If a stock P/E is 20 times EPS should at least grow by 20 percent. If EPS grows at 30 percent, then it is a bargain. If it only grows by 10 percent, then you might be overpaying for the growth.

Economic moat is a must. 100 baggers need to reinvest at high returns on capital over long periods of time. Moats make it possible. It can be network effects, a secret recipe, a recognizable brand of quality, or simply being a low-cost producer. A good understanding of the business should help you identify its moat and give you the confidence to hold it throughout the years.

Look for smaller companies. A smaller company has a bigger room to grow. It is harder to grow a large cap at high rates of return. $170 million sales were the average from the 365 companies studied in the book. Mayer suggested a market cap of below $1 billion.

Owner-operators are preferred. Many of the businesses that had good returns is managed and operated by owners with big stakes in the company. Investing with the people who control the company makes you a partner and solves the agency problem. It is not perfect but is better than investing with management that has no skin in the game.

Time is the friend of a wonderful business. The fastest 100 baggers in the book took at least five years. In normal instances it will take more likely about 20 years to get there. One way to fight impatience is to set an amount for each company you picked and commit to holding it for 10 years.

Have a good filter. There will be many distractions such as economic data and reports, and market predictions of doom and boom. Being able to filter out the noise and focus on the business of the company is more important. Do not focus too much on forecasting where the market is going.

Luck matters. A company finding new deposit of resources or creating a hit product can help you get faster to your goal, just as a new technology or competition can destroy a company.

Be reluctant to sell. Thomas Phelps said to do not take an investment action for a non-investment reason. Some non-investment reason is that the stock is too high, or it is not moving. You should only sell when you made a mistake in judging the business, and it has failed meet your investing criteria or you find something that is more undervalued and has better prospects than the current one.

There are several stocks that have reached 100-bagger status listed at the Philippine Stock Exchange. One of them is International Container Terminal Services Inc. It took 21 years to reach 100-bagger (from 1992 to 2013), a 25-percent compounded annual growth rate (CAGR). However, you could have also picked it up in the late 2000 and by the end of 2012 you could have returned 100 times your money, producing a CAGR of about 47 percent. A good company will eventually go up in value over time. The price you pay determines how fast you get to your goal.

Josefino R. Gomez is a registered financial planner of RFP Philippines. To learn more about personal financial planning, attend the 91st RFP program in September 2021 For inquiries, email info@ rfp.ph or text at 09176248110.