The Great Super Investors Hold 10 Baggers

[Ben Graham]

Most Super Investors hold shares in companies that were bought at a deep discount to the appraised intrinsic value and hold for 5, 10, 20 years, or forever, in order to see the market price multiply 10 fold.

 

A good CEO will always focus on growing the company's Intrinsic Value and consider net income, that is reported quarterly for the media, to be meaningless. All Value Investors seek to own a business that has growing operational income, future cash flows that will be huge ideally, with a competitive advantage - that is a weapon to be feared by their competitors. 

 

Investors however need to also have the courage and conviction to hold for the long term, giving the company ample time to reach it's full potential.

[Kraven]

Hmm, really?  Most "super investors" hold their positions until they have a 10 bagger?  Where is your authority on this point?  Also, what is your authority that "all" value investors seek to own a business with growing operational income, cash flows, etc. and have a competitive advantage?  This is all very interesting and apparently your namesake isn't a super investor under any of this criteria. 

[beerbaron]

No true, Graham did hold a big chunk of Geiko for 25 years!

 

BeerBaron

[Ben Graham]

Hmm, really?  Most "super investors" hold their positions until they have a 10 bagger?  Where is your authority on this point?  Also, what is your authority that "all" value investors seek to own a business with growing operational income, cash flows, etc. and have a competitive advantage?  This is all very interesting and apparently your namesake isn't a super investor under any of this criteria.

 

All one has to do is look at the great super investor Warren E. Buffett to see he has held The Washington Post for a 10 bagger and Berkshire Hathaway it self, he will hold forever - 10 baggers.

 

All Value Investors are taught to treat a stock as a business. At the Heilbrunn Center for Graham & Dodd Investing - Columbia Business School and The Ben Graham Centre for Value Investing at Richard Ivey School of Business, both teach all of this to their students. Below is what is taught at these value investing schools.

 

 

(3) Principles of Value Investing

 

First, think of stocks in the same way that a business person would think of a business. Second, do not follow but instead try to take advantage of the manic depressive Mr. Market. Third, always look for a margin of safety.

 

http://www.bengrahaminvesting.ca/

 

http://www7.gsb.columbia.edu/valueinvesting/

 

[Kraven]

No true, Graham did hold a big chunk of Geiko for 25 years!

 

BeerBaron

 

I know about GEICO.  I am not sure though that one holding (albeit his best one) changes a lifetime of different investment strategy.

[Kraven]

Hmm, really?  Most "super investors" hold their positions until they have a 10 bagger?  Where is your authority on this point?  Also, what is your authority that "all" value investors seek to own a business with growing operational income, cash flows, etc. and have a competitive advantage?  This is all very interesting and apparently your namesake isn't a super investor under any of this criteria.

 

All one has to do is look at the great super investor Warren E. Buffett to see he has held The Washington Post for a 10 bagger and Berkshire Hathaway it self, he will hold forever - 10 baggers. All Value Investors are taught at Heilbrunn Center for Graham & Dodd Investing -Columbia Business School and The Ben Graham Centre for Value Investing at Richard Ivey School of Business, both teach all of this to their students. Below is what is taught at these value investing schools.

 

 

(3) Principles of Value Investing

 

First, think of stocks in the same way that a business person would think of a business. Second, do not follow but instead try to take advantage of the manic depressive Mr. Market. Third, always look for a margin of safety.

 

http://www.bengrahaminvesting.ca/

 

http://www7.gsb.columbia.edu/valueinvesting/

 

I don't understand a thing you are saying.  All value investors go to Columbia or the Richard Ivey School of Business?  Buffett's Washington Post and Berkshire investments define value investing?  All very intriguing. 

[Ben Graham]

Hmm, really?  Most "super investors" hold their positions until they have a 10 bagger?  Where is your authority on this point?  Also, what is your authority that "all" value investors seek to own a business with growing operational income, cash flows, etc. and have a competitive advantage?  This is all very interesting and apparently your namesake isn't a super investor under any of this criteria.

 

All one has to do is look at the great super investor Warren E. Buffett to see he has held The Washington Post for a 10 bagger and Berkshire Hathaway it self, he will hold forever - 10 baggers. All Value Investors are taught at Heilbrunn Center for Graham & Dodd Investing -Columbia Business School and The Ben Graham Centre for Value Investing at Richard Ivey School of Business, both teach all of this to their students. Below is what is taught at these value investing schools.

 

 

(3) Principles of Value Investing

 

First, think of stocks in the same way that a business person would think of a business. Second, do not follow but instead try to take advantage of the manic depressive Mr. Market. Third, always look for a margin of safety.

 

http://www.bengrahaminvesting.ca/

 

http://www7.gsb.columbia.edu/valueinvesting/

 

I don't understand a thing you are saying.  All value investors go to Columbia or the Richard Ivey School of Business?  Buffett's Washington Post and Berkshire investments define value investing?  All very intriguing.

 

OK I reworded it, maybe it will help you

[Kraven]

I don't know.  I tend to phase out with talk about 10 baggers.  Carry on.

[moore_capital54]

I tend to look at things a little differently. The market price is irrelevant, and is only a function of the price I paid the participants vs. the price they are now willing to pay. The only measure that matters is the valuation based on the underlying fundamentals of the business. If they keep improving year over year and meeting my milestones then I will continue to hold, and if they don't then I sell. I think that is how "superinvestors" find themselves holding 10 baggers. They focus on the dynamics of the underlying business and not the market price.

[Ben Graham]

I tend to look at things a little differently. The market price is irrelevant, and is only a function of the price I paid the participants vs. the price they are now willing to pay. The only measure that matters is the valuation based on the underlying fundamentals of the business. If they keep improving year over year and meeting my milestones then I will continue to hold, and if they don't then I sell. I think that is how "superinvestors" find themselves holding 10 baggers. They focus on the dynamics of the underlying business and not the market price.

 

 

 

Absolutely moore_capital54, I think our messages coinside when we boil down what is most important. You said it is the valuation based on the underlying fundamentals of the business and elaborated by saying focus on the dynamics of the underlying business and not the market price.

 

The most important message in my post is "super investors" buy at a deep discount to the appraised intrinsic value and hold for 5, 10, 20 years, or forever, in order to see the market price multiply 10 fold.

 

Same thing just said slightly differently, I think.

 

Then I elaborated by focusing on:

1. growing intrinsic value

2. operational income, future cash flows

3. having a competetive advantage.

 

You said the market price is irrelevant, and is only a function of the price I paid the participants vs. the price they are now willing to pay. - Agree 100%

 

I posted the net income is meaningless.

 

moore_capital54 I agree with everything your message said, we just pointed out some differnt points "super investors' focus on to obtain 10 baggers.

 

As the business grows, it is incumbent on the investor to monitor the moving intrinsic value to ascertain if full value has been reached.

 

*************************************************************

Pay attention to the changes in realized and unrealized gains (intrinsic value) and to the course of operating earnings, and you will be on the right track.- Warren Buffett

 

source: Berkshire Hathaway 2010 Annual Report: (page20-21)

 

http://www.berkshirehathaway.com/2010ar/2010ar.pdf

[twacowfca]

No true, Graham did hold a big chunk of Geiko for 25 years!

 

BeerBaron

 

Yes. Geico had to be held outside his partnership because that would have subjected BG and his partners to treatment as an insurance holding company.  BG is said to have made more money by holding Geico for the long term than from everything else he flipped after usually about a 50% gain.

 

However, the reason Geico did so well and continues to do well under WEB is that it has a large sustainable competitive advantage and a broad horizon to grow their business.  Both WEB and BG understood that, and that's why holding Geico for the long haul was the exception to BG's normal style.  BG followed IBM and its predecessor closely for his entire lifetime, but never bought it even on those rare times when it sold for a bargain price because he was always uncertain about the durability of their franchise.  WEB has continued that study of IBM, but has never to the best of my knowledge had enough confidence to be sure that their advantage would continue to be durable over many decades.  :)

[Ben Graham]

One particular special situation that came to Ben’s attention in 1948 was Geico which Graham-Newman ended up buying at $27 per share.

 

Geico had the novel concept of selling discounted automobile insurance by mail to the consumer by cutting out the middleman (the agent), policies being sold only to government employees who, as a group, averaged fewer claims. In 1958, Geico extended the avalability of their coverage to professional, managerial, technical and administrative workers, thus extending their market base from around 15% of car owners to 50%. By 1972, the Graham-Newman holding was worth $16,349 a share at the peak valuation of Geico stock. Although the stock slipped back after that, Ben observed that this one stock generated far more profit for him than all of his other investments combined. In 1996, Warren Buffett purchased all the outstanding shares of Geico and it became a wholly-owned subsidiary of Berkshire Hathaway. Once again, Buffett the pupil followed Graham the teacher.

 

http://www.grahaminvestor.com/articles/benjamin-graham/the-intelligent-investor/

[namecsw]

I don't know.  I tend to phase out with talk about 10 baggers.  Carry on.

 

 

With all due respect, you shouldn't tune out. Doubly so if you're young.

 

Think of it this way: 10 bags is a little more than 3 doubles (2,4,8). If it's a fifty cent dollar, you'll get your first double when you close the gap between intrinsic value and market value. It doesn't always close quickly, but it always closes (in my experience).

 

You'll get the next two doubles from a combination of improving revenues and improving margins.

 

Buy something where the top line will grow nicely for a decade, and the bottom line will grow a little faster. The faster bottom line growth occurs when margins improve. The combination should give you a little more than three doubles, and take you to 10 bags.

 

To see what I mean, you might play around with the DuPont ratios to see how small changes can have big impacts. 

 

My main point is this: if you start with ideas that have the potential for a 10x return, and you have a reasonable mental model, there's a good chance you'll find some names that deliver for you.

 

Now for the punchline: it's surprisingly hard to hold on to a stock when it's up 8x or 10x.

 

Mounting the tiger is hard. Holding on is even harder.

 

 

 

[Parsad]

Fairfax has been a greater than 100 times bagger for those that bought 20+ years ago.  In fact, the annual dividend is now 3-4 times greater than the share price was 25 years ago. 

 

Although, it would have been incredibly tough for many shareholders to watch it go to $600, then plummet to $60, only to rebound to $400.  That's probably why many people choose not to seek out multi-baggers.  Cheers!

[alwaysinvert]

I think you would disqualify yourself from 99% of 10-baggers by selling out say when something hits 20x earnings (or another arbitrary high multiple which would serve as an indicator of overvaluation). So chasing 10-baggers seems a bit like chasing a mirage. Now, if something stays pretty cheap all the time during a 10 year holding period and at the same time performs extremely well operatively, then our job gets very easy, but how often does that actually happen?

 

It's only with hindsight bias we can say that it was a bad decision not to hold on to stock x if it then continues to perform well. Why beat yourself up if value dictated your selling? 

[Ben Graham]

Fairfax has been a greater than 100 times bagger for those that bought 20+ years ago.  In fact, the annual dividend is now 3-4 times greater than the share price was 25 years ago. 

 

Although, it would have been incredibly tough for many shareholders to watch it go to $600, then plummet to $60, only to rebound to $400.  That's probably why many people choose not to seek out multi-baggers.  Cheers!

 

Prem Watsa is without a doubt a Super Investor! Along with Francis Chou one of the original investors of Fairfax Financial Holdings Limited.

 

If my memory serves me correctly Francis Chou has never sold any of his original shares of Fairfax. He mounted the tiger ( like  namecsw  referenced ) and held on through all the ups and downs.

 

Buying the intrinsic value of a business at a deep discount, with good management that has a durable competitive advantage, with sustainable  free cash flows makes an investor never want to allocate capital else where. Why leave a good thing, let it ride.

 

Francis Chou is a true Tiger and Super Investor who holds 10 baggers.

 

http://www.valuewalk.com/francis-chou-resource-page/

 

Mounting the tiger is hard. Holding on is even harder. -  namecsw

[namecsw]

Fairfax has been a greater than 100 times bagger for those that bought 20+ years ago.  In fact, the annual dividend is now 3-4 times greater than the share price was 25 years ago. 

 

Although, it would have been incredibly tough for many shareholders to watch it go to $600, then plummet to $60, only to rebound to $400.  That's probably why many people choose not to seek out multi-baggers.  Cheers!

 

 

That's why the Circle of Competence is so important.

 

Either you know the company cold, so it's inside YOUR circle of competence, or you place your faith in someone like Prem, and hope the business is inside HIS circle of competence.

 

If you ever meet people from BPL, you'll find they're almost always the latter--they had complete and utter faith that WEB was inside his Circle of Competence.

 

 

[rmitz]

Fairfax has been a greater than 100 times bagger for those that bought 20+ years ago.  In fact, the annual dividend is now 3-4 times greater than the share price was 25 years ago. 

 

Although, it would have been incredibly tough for many shareholders to watch it go to $600, then plummet to $60, only to rebound to $400.  That's probably why many people choose not to seek out multi-baggers.  Cheers!

 

 

That's why the Circle of Competence is so important.

 

Either you know the company cold, so it's inside YOUR circle of competence, or you place your faith in someone like Prem, and hope the business is inside HIS circle of competence.

 

If you ever meet people from BPL, you'll find they're almost always the latter--they had complete and utter faith that WEB was inside his Circle of Competence.

 

I would also argue that there is a significant difference in holding when you have a material impact / influence on the company in question...

[Ben Graham]

 

If both O. Mason Hawkins and Prem Watsa are major shareholders in a business then something tells me they understand and know the intrinsic value of that business and have factored in the future operating income of that business, and are prepared to hold until full value is reached.

 

If or whenever the gap from purchase price to appraised value is squeezed out , a margin of safety erodes (protection against loss).

 

Growing Intrinsic Value is the key and having the Circle of Competence to analyze the business is critical.

 

I would put my faith in Prem Watsa and O. Mason Hawkins.

 

***

rmitz,

 

Hawkins has said he is not oblivious to the results and performance of a business nor would be idle.

 

I take that to mean he can have a material impact / influence on a company as a major shareholder.

 

And when you have both Prem & O. Mason as combined major shareholders in one company that indicates even more positive ideas will be implemented.............

 

I would also argue that there is a significant difference in holding when you have a material impact / influence on the company in question...

 

 

[Ben Graham]

I Love it when Parsad points out the greatness of Prem Watsa and Fairfax Financial, because Prem deserves the same recognition that Warren Buffett gets and needs be placed in The Great Super Investor Hall of Fame.

 

Prem Watsa and Francis Chou are both number one in my book.

 

The common thread that  these masters of value investing have, is their ability to wait or look for the fat pitch. That is what Ted Williams calls it and Ben Graham calls it the "Margin of Safety" - Intrinsic Value bought at a deep discount.

 

Who today better deserves to be put in The Hall of Fame than Walter Scott Jr. He is literally a great builder of Intrinsic Value that investors allocate capital to. Just like Steve Jobs who built the On/Off button to the Internet - the access device with a touch screen to the Internet. Walter Scott Jr. built the world-class video fiber Internet Backbone. The holder of another 10 bagger.

 

In April 2000, the Smithsonian (Institution) cited Level 3 Communications as a Computerworld Laureate for its historic achievement in creating a new kind of network infrastructure. The Smithsonian noted that Level 3 is changing communications at a fundamental level – and “helping to stimulate the biggest change in communications technology in 100 years".

 

Fairfax has been a greater than 100 times bagger for those that bought 20+ years ago.  In fact, the annual dividend is now 3-4 times greater than the share price was 25 years ago.

 

WOW!!! This is a value investors dream come true. The Fairfax annual dividend payout is 3-4 times greater than the share price was 25 years ago.  ;D :) :) ;D

 

 

 

 

 

 

 

[tombgrt]

I'm still missing the meaning of this topic or the point that is being made.  Everything that has been said here seems... obvious?  :-X

 

I'll follow Moore on this one. There really isn't anything else to say about it.

 

I tend to look at things a little differently. The market price is irrelevant, and is only a function of the price I paid the participants vs. the price they are now willing to pay. The only measure that matters is the valuation based on the underlying fundamentals of the business. If they keep improving year over year and meeting my milestones then I will continue to hold, and if they don't then I sell. I think that is how "superinvestors" find themselves holding 10 baggers. They focus on the dynamics of the underlying business and not the market price.

[bmichaud]

Hahahahah the reactions to this thread are hilarious. You guys obviously don't spend enough time on the LVLT thread ;) That's what this entire thread is about!!

[Kraven]

This thread has really made me think.  It makes some very good points and has really changed some of my ideas about investing.  Just as an example, I recently found a couple stocks that I am positive are 8 or 9 baggers, but I've throw them back.  They're guppies!  I only focus on stocks that are AT LEAST 10 baggers now.  If my money won't increase 10x, I don't want to hear about it.  I want to be a super investor too, after all.  I just cleaned out my office and threw away anything dealing with Ben Graham (the real one, not the board guru), Schloss, Cundill, Brandes and Donald Smith.  They are worthless.  I mean, come on, they find things that have perhaps 50-100% potential upside.  Guys, get out of the sandbox, we only deal with 10 baggers. 

[Ben Graham]

I'm still missing the meaning of this topic or the point that is being made.  Everything that has been said here seems... obvious?  :-X

 

I'll follow Moore on this one. There really isn't anything else to say about it.

 

I tend to look at things a little differently. The market price is irrelevant, and is only a function of the price I paid the participants vs. the price they are now willing to pay. The only measure that matters is the valuation based on the underlying fundamentals of the business. If they keep improving year over year and meeting my milestones then I will continue to hold, and if they don't then I sell. I think that is how "superinvestors" find themselves holding 10 baggers. They focus on the dynamics of the underlying business and not the market price.

 

 

tombgrt,

 

Thank you for your keen observation and placing the end of this thread through the eye of the needle. By pointing out with emphasis on moore_capital54's posted message.

 

I defiantly will be monitoring the companies in my portfolio year over year to determine if they are meeting my milestones then I will continue to hold, and if they don't then I will sell.

 

I will focus on the dynamics of the underlying business and not the market price.

 

I will never look to the market price for guidance. The market price is only used to take advantage of an out of kilter price to the intrinsic value relationship.

 

I appreciate your focus and direction to realign this topic to why super investors hold 10 baggers and highlighted moore_capital54"s posted message that drives home the point.

 

The only measure that matters is the valuation based on the underlying fundamentals of the business.

[Ben Graham]

This thread has really made me think.  It makes some very good points and has really changed some of my ideas about investing.  Just as an example, I recently found a couple stocks that I am positive are 8 or 9 baggers, but I've throw them back.  They're guppies!  I only focus on stocks that are AT LEAST 10 baggers now.  If my money won't increase 10x, I don't want to hear about it.  I want to be a super investor too, after all.  I just cleaned out my office and threw away anything dealing with Ben Graham (the real one, not the board guru), Schloss, Cundill, Brandes and Donald Smith.  They are worthless.  I mean, come on, they find things that have perhaps 50-100% potential upside.  Guys, get out of the sandbox, we only deal with 10 baggers.

 

Kraven,

 

You have a gifted sense of humor. After looking at a company in my portfolio it will go by the name guppie  from here on out. Thanks to you  ;D