100Baggers

4 STUDIES OF 100-BAGGERS 35
That means at least 40 percent of the companies in the market are
microcaps. This is a vast area to explore. And somewhere in this mix
are tomorrow’s big companies. I’m stating the obvious, but many big
companies started out small. Gentry lists among these the following:
• Starbucks began in 1971 in Seattle as a small store sell
ing coffee beans and today is worth $76 billion in the
stock market.
• Apple began in 1976 in a garage with a $10,000 invest
ment and today is worth $766 billion.
• Subway began as a single sandwich shop in Bridgeport,
CT, and a $1,000 investment—and today generates over
$9 billion in sales in over 35,000 locations.
You get the idea. Small companies can grow to 10 times or 20 times
and still be small. They can even become 100-baggers. Apple today, by
contrast, has a $766 billion market cap. We can safely assume it won’t
go up 10 times or 20 times and certainly not a hundredfold.
The Alchemy behind 100-Baggers
My focus is on the US market, but I’ve wondered what such a study might
look like in other markets.
Fortunately, one such study exists. A firm called Motilal Oswal put
together a study of 100-baggers in India. Published in December 2014,
the authors of the report also found their inspiration in Phelps’s work and
dedicated their report to him.
It’s a fine report, and there is much wisdom in it. “Very few investors
even conceptualize their equity investment multiplying 100 times,” they
wrote. “Even fewer actually experience a 100-fold rise in the price of their
stock(s). This is because such 100-fold rises may take longer than three,
five or even 10 years’ time. And holding onto stocks beyond that period
requires patience.”
Indeed it does, as you well know by now. Nearby is a chart that neatly
plots the returns required, and the years needed, to reach 100-bagger status.