Mark Tobin

For many investors that focus on small cap and microcap stocks, the dream is of finding a 10-bagger or even a 100-bagger stock. The little stock that turned into an absolute world beater, something akin to finding a McDonalds in the late 1960’s when it had roughly a 1,000 outlets compared to its circa 37,000 outlets today. More modern day examples would be stocks like Monster Beverages, Apple, and Priceline.

A guy called Thomas Phelps published a book in 1972 called a 100 to 1 in the stock market. In it, he covered the period from 1932 to 1971 and found roughly 350 stocks that had turned into 100 baggers in that time. I have just finished reading Phelps book after been alerted to Phelps work when reading another book called 100-Baggers by Chris Mayer. In Mayer’s book, he basically updated Phelps research by looking for 100-baggers in the period 1962-2014. I probably read the books in the incorrect order in terms of time periods considered but that’s not a travesty.

Although both books largely draw similar conclusions I will focus on Chris Mayer’s book, as the stocks he profiles in the book’s case studies are more relevant and more tangible to present day investors.

Mayer managed to whittle his study down to 365 names that were 100-baggers for the period he looked at, so there was plenty of chances for investors to find at least one.

Some of the key observations from Mayer’s study were:

(1) Hold for the very long term

The majority of stocks took a long time to reach 100-bagger status, roughly somewhere in the continuum of 16-30 years. The fastest 100-baggers were about 5 years, even by today's standards that's a long time, given an article by Finsia in 2016 showing that the average holding period for ASX stocks to be just over 1 year! This is compared to an average holding period for ASX stocks in 1986 of about 7 years. This should serve as a reminder for microcap investors that they need to think long term and businesses need to be given time to grow into operations of significant scale. Holding over a long time period also means there will be some big price drops in the holding period and probably long periods of stagnation where the price is range bound. Both these situations are hard to deal with in a portfolio. Sometimes the most difficult thing is to do nothing.

(2) No specific industry sector dominated the list

Another key takeaway was that no industry group or sector dominated the list. So it is wise to be a generalist rather that a sector/industry focused analyst if you're going to try and uncover as many of these stocks as you can. You need to throw your net as wide as possible.

(3) Generally high returns on equity

While not exclusively so, a large segment of the businesses that made the list had high returns on equity. However probably more critically was the fact that they could reinvest their profits back into the business and still achieve these high returns over an extended time period.

(4) Owner Operators outperform

A number of stocks on the list owed a large part of their performance to the leadership of company by the founder or major shareholder who was also the CEO. Ian Cassel from the great site Microcap Club calls these CEO’s “Intelligent Fanatics”, we are talking your guys like Jeff Bezos, Steve Jobs, Sam Walton’s etc. Ian has written a great book titled The Intelligent Fanatics Project along with a guy called Sean Iddings, which profile a lot of these guys, and stocks they were involved in.

(5) Start small

A lot of these 100-baggers were at one time very small companies versus the behemoths they have grown into today. It is just much harder for larger companies to grow exponentially over time as they most likely dominate large portions of the total market in their industry. The 100-baggers tended to have large addressable markets that they could operationally grow into over time. This is a corollary to point 3, the ability to be able to reinvest profits back into the business as it grows at the same relatively high rates of return.

For anyone interested in hearing more about the research as these books are hard to source in Australia (unfortunately) there is Callum Newman’s from the Daily Reckoning Blog podcast “The Newman Show” which interviews (Episode 19) Chris Mayer for anyone who wants to hear more about the study and the book. In addition, there is a presentation by Chris of his findings on the MicroCap Club website taken from one of their recent microcap investor conferences. Microcap Club has some really great interviews and resources for anyone who wants to learn more about how professional microcap investors finds stocks for their portfolios on a daily basis.

As I said these books are hard to come by in Australia but they are well worth effort in ordering in from overseas or picking up on your next trip. I found both these books to be great reads and they have certainly caused me to pause for thought about tweaks I could make to my own research process.


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Patrick Fresne

An investor called David Ryan won a US investing championship three times between 1985 and 1990 using a very interesting methodology which was detailed in a 1990 newspaper interview that I stumbled across many years ago. I attempted to replicate this method in 2013, and found that the returns were very impressive: over that year, the average for ten stocks picks identified using this methodology was 136%. Interestingly, in more recent interviews with the media, David Ryan has stated that he employed William O'Neil's CANSLIM method during the investing championships, though this is not quite what was he described in the 1990 interview: my suspicion has been that he subsequently changed his story in an attempt to protect his 'trade secrets' as he started managing a fund from 1992 onward. I'd be happy to share this method if anyone happens to be interested in this, though for individual investors only.

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Anthony Pereira

Excellent article Mark. Patrick, I have come across David Ryan stating his use of the CANSLIM method; some articles even mentioned that he added very little of his own technique to it, instead he was just being faithful to the methodology as much as possible. As such, I would be very interested in the methodology that you mentioned if you would be kind enough to share it. My email address is Thank you Anthony

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Peter Brown

Hello Patrick. I would be interested in receiving information about the method used by David Ryan. I note that he published a series of audiotapes in 1990 outlining his method but these are on cassette and I no longer have the means to listen to them.

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Albert William

Hi Patrick Fresne. I am a private individual investor - a very mediocre one unfortunately. I would be grateful to hear of this methodology of David Ryan that you mention. Thanks & regards/Albert. email address :

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Joycern Chan

Hi Patrick, its very nice of you to share the methodology with us. I'm keen to know more. Thanks a million! My email address is

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Patrick Fresne

Hi Albert and Joycern, I'll send a message from my private email in the few days.

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