The Warren Buffett Spreadsheet – Stock Valuation & Analysis

Link to the book on Amazon:

This book is presenting for us what is the typical characteristic of a 100-bagger stock, by looking back at the history of the stocks that has already become 100 baggers. It identifies how they looked like in the beginning and what they had in common before they began their growth to become 100-baggers. The author tells us that there are no clear method or formula for identifying 100-bagger stocks, but there are some things they have in common that you can use in your search for these types of stocks.

The book is easy to read and quite useful, especially for the beginner investor.

Here are my notes in no particular order:

-Typical characteristics of 100 bagger stocks: Keywords: New methods, new materials, new products, good for mankind.

-Focus on quality and not price. Compounding is what counts the most, not multiple expansion.

-Coffee can portfolio can be a good 100 bagger strategy. Pick 10 stocks that you intend and will keep for at least 10 years. Why? 100-bagges need TIME to become 100-baggers. You need to be patient and hold on and not be tempted to sell. In average it takes the stock 25 years to become a 100 bagger.

-Buy right and hold on for a very long time.

Typical attributes of a 100 bagger stock:

-Huge EPS growth + P/E expansion makes the 100 bagger. Growth is the keyword.

-Beaten down stocks, forgotten stocks that returns to profitability can also become 100-baggers.

-Insider ownership! Most 100-baggers had insider ownership. Skin in the game. Management interests aligned with investors.

-Small size. Smaller is better. Because the potential for growth is bigger. The law of large numbers dictates that a stock like Apple or Google cannot become 100 baggers from their current size. At least that is highly unlikely.

-High quality business+management. Management very important for small companies. More so than large companies. Management should be good capital allocators. Opportunistic share buybacks to increase returns to shareholders.

-Longevity in quality and growth

-Should preferably be bought at a favourable price, because it will take shorter time to reach 100 bagger.

The typical 100 bagger stock in the paper “Motilal Oswal 100x”
-Median market cap 500 mill
-Median sales at beginning 170 mill
-Price to sales ratio of 3

Further observations:

-Most did not look cheap based on past results.

-You must look forward to find 100 baggers. You will probably not find 100 baggers by looking at the past history. Because at that time it would already be obvious for other investors that this is a high growth, high quality company and it would already be priced accordingly

-Companies with national and international markets. Because you want a product and service that can be used worldwide for maximum growth

-Rising Return on equity YoY.

-Explosive sales growth

-Preferably in an industry with headwinds.

-Sales and subscribers growth can make up for EPS growth. Netflix, Amazon and other companies that sacrifice profit in the present to take market shares and get the profit in the future comes to mind. Sometimes you need to look beyond the reported earnings.

-Netting a 100-bagger takes vision and tenacity and often a conviction in an idea that is not yet obvious in the financials

-Better with 20% growth and a 20 P/E, than 10% growth and 10 p/e. This idea is similar to Peter Lynch idea. The power of compounding makes it so that over long term the former is to prefer than the latter.

-ROE is typically above 20% for 100-baggers

-Sales growth at least 10%

-At least 10% insider ownership. 10-20% is ideal.

-Look for companies that has 20%+ ROE for the past 5 years.

-Bet big on your best ideas.

-You can find 100-baggers in all kind of industries

-Look for managers that think and act long term

-Does the company have a product or service that adds value to the costumer?

-Look for companies with the highest gross margin relative to competitors.

-Don’t compare yourself to the SP 500. Take the long term view with 100 baggers. Underperformance for several years are normal.

-Ignore the “market”, FED etc.. just focus on picking the best stocks regardless of current macro conditions. Because the macro is highly unpredictable.

-Read conference calls with the management to judge them. Don’t listen, you might get swayed by their charisma and tone of voice.

-Read several quarterly reports consecutively to see if the management is consistent with their words and actions.

-Are questions in the conference calls ever evaded? That is a warning sign.

-Best protection against freud:  High insider ownership. Beware of Chinese companies. Still freud risk even with high insider ownership.

-You need to understand how the company makes money

-Avoid the hot sectors like Biotech – Rife with freud’s.
Social media – Cloud computing etc..

-The best ideas are often the simplest.

-Find ideas that is not obvious from the numbers. Someone knows the story. Find them, or do investigation yourself.

-Invest in stocks with solid balance sheets that can survive a crisis.

-You will NOT find many 100-baggers in the deep value segment. Focus on quality first, cheapness second.

-A low multiple on the 100-bagger stock is preferred if possible. A PEG-ratio below 1 is good.

-Companies that does NOT pay a dividend is preferred. You want the company to re-invest all their profit into further growth if you have the goal to get a 100 bagger.

-Maximum market cap of 1 billion is preferable to be able to get a 100 bagger stock.

-The fastest 100-bagger mentioned in the book to 5 years. More typical 20-25 years.

-You will need also need luck to get the 100-bagger. Not easy to identify.

-When to sell a stock you think can be a 100-bagger? Almost never! Sell when it’s obvious you made an mistake. Do not sell a 100-bagger because it’s temporarily become a bit too expensive or it falls in price because of the overall market sentiment.

-Avoid stop losses. You will get sold out your 100-baggers. Expect volatile prices and large temporary drawdowns.

-Focus on the business performance and not the stocks price.

Portfolio construction  with a 100-bagger strategy:
-Carefully selected stocks. Maximum 10 stocks
-Hold for several years
-Uncorrelated industries

The stock should have a moat to be able to earn a consistently high ROE years afters years. One or more of these:
-Brand: Tiffany, Cola, Sees Candy, Monster
-High switching cost: CSVI (bank software – Core processing), Microsoft, Banks
-Network effects: Twitter, Facebook, Mercado Libre
-Lowest cost operator: Costco, walmart
-You are the biggest and can produce the cheapest (Scale)

Some stocks mentioned in the book:
-Monster
-Tractor Supply Company
-Amazon
-Colfax
-Autonation
-Loews
-General Finance

Recommended owner operator stocks:
-Transdigm
-Danaher
-Colfax
-NVR Inc
-Markel
-White Mountains
-Fairfax
-Autozone
-Constellation Software

Holding companies:
-AB-kinnevik
-Bollore Group
-Dundee Corp
-First pacific corp

My summary/takeaways:

To find 100 baggers you should focus on:
-Look at small/micro cap stocks
-High insider ownership
-Growth! In sales and EPS
-High ROE
-Company with a moat
-You will probably need to look beyond the financial numbers. How does the future look like? What’s the catalyst?
-Hold on for a very long time.

Suggestion for a stock screen to find potential 100-baggers:

-Market cap below 500 mil$
-Sales growth 15% +
-EPS growth 15%+
-PEG below 1
-Insider ownership 10%+
-ROE this year 20%+
-Average ROE past 5 years 20%+
-Past 5 years: ROE not below 15%
-Biotech and financials excluded

Results using Uncle Stock Screener:
https://www.dropbox.com/s/g96nsnszrixizzo/Potential%20100-baggers%20screen.xlsx?dl=1

Symbol	Name	Enterprise Value	Market cap
MBAP.JK	Mitrabara Adiperdana	63.16M USD	144.87M USD
KELLTONTEC.BO	Kellton Tech Solution	21.17M USD	23.07M USD
1126.HK	Dream International L	180.30M USD	251.58M USD
1523.HK	Plover Bay Technologi	117.44M USD	143.88M USD
CHEMCRUX.BO	Chemcrux Enterprises	8.29M USD	9.26M USD
0240.HK	Build King Holdings L	57.68M USD	134.62M USD
2124.T	JAC Recruitment Co.,	313.46M USD	397.18M USD
3966.HK	China Baofeng (Intern	422.79M USD	209.91M USD
MRSS.BO	Majestic Research Ser	2.34M USD	921.17K USD
8076.HK	Sing Lee Software (Gr	17.80M USD	20.39M USD
PONDYOXIDE.BO	Pondy Oxides And Chem	30.67M USD	13.60M USD
SUYOG.BO	Suyog Telematics Ltd	41.59M USD	37.49M USD
ICP1V.HE	Incap Oyj	66.60M USD	69.27M USD
GMBREW.NS	G.M.Breweries Ltd	96.16M USD	94.84M USD
FBF.V	Fab-Form Industries L	2.52M USD	3.11M USD
SUPRAJIT.BO	Suprajit Engineering	283.90M USD	285.79M USD
BLUECHIPT.BO	Blue Chip Tex Industr	4.38M USD	2.34M USD
6556.T	Welbe, Inc.	326.09M USD	343.25M USD
CL1.AX	Class Ltd	105.72M USD	117.32M USD
GPP	Green Plains Partners	340.33M USD	173.70M USD
VALIANTORG.BO	Valiant Organics Ltd	333.00M USD	321.01M USD
3679.T	ZIGExN Co., Ltd.	286.77M USD	326.27M USD
AHLUCONT.BO	Ahluwalia Contracts (	174.43M USD	192.86M USD
SHRDAIS.BO	Sharda Ispat Ltd	3.62M USD	2.54M USD
6071.T	IBJ, Inc.	243.04M USD	241.47M USD
PSPPROJECT.NS	PSP Projects Ltd	176.74M USD	202.27M USD
KNRCON.NS	KNR Constructions Ltd	474.24M USD	381.36M USD
FSMART.BK	Forth Smart Service P	185.36M USD	154.20M USD
0150.HK	Hypebeast Ltd	207.58M USD	205.99M USD
SALASAR.BO	Salasar Techno Engine	50.46M USD	31.49M USD
LUMAXIND.BO	Lumax Industries Ltd	198.67M USD	155.59M USD
S11.BK	S 11 Group PCL	229.39M USD	103.33M USD
WAVE.PA	Wavestone SA	515.14M USD	454.82M USD
INDOAMIN.BO	Indo Amines Ltd	43.33M USD	28.21M USD
TEJNAKSH.BO	Tejnaksh Healthcare L	6.71M USD	5.96M USD
JIYAECO.BO	Jiya Eco-Products Ltd	8.12M USD	5.39M USD
3772.T	Wealth Management, In	169.83M USD	79.10M USD
CALCOM.BO	Calcom Vision Ltd	4.33M USD	3.60M USD