100 to 1 in the Stock Market summary

7/21/2019 100 to 1 in the Stock Market summary

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100 to 1 in the stock marketJana Vembunarayanan/ September 2, 2014

One of the best ways to learn any domain deeply is to look at the actions of the experts inthat domain and clone it. Cloninis not blind copyin b!t instead it is redisco"erin the

reasons behind those actions and learnin from it. #his way we increase o!r odds of

becomin an expert one day. $ ha"e seen this workin in (1)$n"estments in the form of

1%&s (2)'rorammin( readin the code written by enineers better than !s (3))eadin

books which are read by people better than !s. $ follow few experts when it comes to

readin books. $ p!rchased the book 100 to 1 in the stock marketby #homas *. 'helps as

soon as $ saw the recommendation i"en below. $n this post $ will be s!mmari+in some of

the key ideas from it.

Meet Mr. Paul Garrett

'a!l arret was an accomplished man facin retirement in 1- at the ae of 4. e

determined to make his last years his best years rather than sit o!t the rest of his life as so

many pensioners do. e wanted to increase his wealth in order to increase his power to help

others. e did not ha"e any children so he was not heirselsh. e decided to increase his

wealth by in"estin in fast rowin companies that met his fo!r criteria.
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3xcerpt from 100 to 1 in the stock market

1.$t m!st be small. Sheer si+e militates aainst reat rowth.

2.$t m!st be relati"ely !nknown. 'op!lar rowth stocks may keep on rowin b!t too often

one has to pay for expected rowth too many years in ad"ance. 'robably to meet this

criterion the stock he wanted wo!ld be traded o"er5theco!nter rather than on any stock

exchane.

3.$t m!st ha"e a !ni6!e prod!ct that wo!ld do an essential 7ob better, cheaper, and/or

faster than before, or pro"ide a new ser"ice with prospects of reat and loncontin!ed sales

increases.

4.$t m!st ha"e a stron, proressi"e, researchminded manaement.

e had few friends in the *all Street and in b!siness. *itho!t askin for any

condential information he asked for the names of smaller companies which they liked b!t

were not s!re of. e came !p with a list of fty stocks. #hen he did his homework on these

companies by st!dyin their nancial reports. e shortlisted three of them and did eld trips

and met their chief exec!ti"e o8cers. &inally he chose one, aloid, now 9erox, and in"ested:1%%,000 in its stock between 1- and 1--. On a"erae each stock costed him :1. $n

1-;1 each stock was sellin for aro!nd :12. is initial in"estment rew from :1%%,000 to

:1,2,000. is wealth compo!nded at %2.r. arrett rst had to nd the stock he wanted. #hen he had to b!y it in

the face of recommendations aainst it by people who either knew nothin abo!t, or had

pets they liked better, or belie"ed in di"ersication no matter what. ?nd nally, he had to

hold on, and b!y more, aainst repeated @sellA recommendations he bean to recei"e e"en

before the stock had do!ble in price.

#he key takeaway is To make money in stocks you must have the vision to see

them, the courage to buy them and the atience to ho!d them." #atience is the

rarest o$ the three.

Where does one look for 100-to-one stocks?

>akin a 100 baer in the stock market is a black swane"ent. &or that happen we need to

et exposed to them. 'helps s!ests the followin places to et an expos!re to them.1. $n"entions that enable !s to do thins we ha"e always wanted to do b!t co!ld ne"er

do before. Some examples are a!tomobiles, airplane and tele"ision.

2. Bew methods or new e6!ipment for doin thins we lon ha"e had to do b!t doin

them easier, faster, or at less cost than before. Some examples are comp!ters and

earthmo"in machinery.
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%. 'rocesses or e6!ipment to impro"e or maintain the 6!ality of a ser"ice while

red!cin or eliminatin the labor re6!ired to pro"ide it. Some examples are

disposable syrines and fro+en foods.

4. Bew and cheaper so!rces of enery s!ch as kerosene replacin whale oil, f!el oil

replacin oil, and electricity enerated by atomic power replacin them all.

. Bew methods of doin essential 7obs with less or no ecoloical damae. ?n example

is the !se of sterili+ed insects to wipe o!t a pest rather than employin chemicals

harmf!l to many desirable forms of life.

. $mpro"ed methods or e6!ipment for recyclin the materials !sed by ci"ili+ed man

instead of makin mo!ntains of waste and oceans of sewae.

;. Bew methods for deli"erin the mornin newspaper witho!t carriers or waste, yet

ha"in it instantly a"ailable for re"iew at later date. #hink of $nternet.

!ner does. #his book was

written in 1-;2 and the a!thor explains abo!t the d!rable competiti"e ad"antaes of a

b!siness by !sin the word gate. D!Eett fans sho!ld read it as moat. )emember in 1-;2

D!Eett was still practicin raham style of ciarb!tt in"estin and this !y has already

!red o!t the holy rail of in"estin.


>y fo!rth cateory of stocks showin one h!ndredfold appreciation is that of companies

reportin a far abo"ea"erae rate of ret!rn on in"ested capital for many consec!ti"e

years. %n such issues the investor has sim!e arithmetic and &ather Times on his

side. 3"en in this cateory, howe"er, there is no free l!nch, no @s!re thinA. &irst there is

the daner that the hih rate of ret!rn on in"ested capital may attract too many

competitors. Bo b!siness is so ood that it cannot be spoiled if too many et into it. %t is

vita!!y imortant that the high rate o$ return be rotected by a gate" making

entry into the business di'cu!t o$ not imossib!e.S!ch ates may be patents,

incessant inno"ation based on s!perior research and in"ention, ownership of !ni6!ely

ad"antaeo!s so!rces of raw material, exceptionally wellestablished brand names 5 yo!

can ll in others as yo! choose. F!st be s!re the @ateA is stron and hih. >ost of !s want
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pretty m!ch the same material thins in life 5 ood food, ood clothes, a home on the riht

side of the railroad tracks, ood schools for o!r children. #o et more than the a"erae we

m!st be able to do more than the a"erae, or do what we do better than the a"erae. $f all

we can do is take in washin there will always be someone down the street ready to take it

for two cents a po!nd less than o!r price.

#ho!sands of in"estors ha"e owned one or another of these 100toone @hihateA stocks

at sometime or other in the last forty years. 'robably not one in a tho!sand has held his

winner !ntil it increased one h!ndredfold in "al!e. ?ll of co!rse wish they had done so. Get it

wo!ld be 7!st as reat a mistake to ass!me that what has been will contin!e to be fore"er

and e"er. Or to pay now for all the rowth that can be foreseen.

#he total n!mber of years and the rate of ret!rn re6!ired to increase the stock price to

increase by 100 times is i"en below. ?lbert 3instein is absol!tely riht when he said

that compo!ndin is the eihth wonder of the world.

Figuring the odds

$n"estin is not a ame aainst nat!re, b!t aainst other in"estors. Doth b!yers and sellers

are actin on the same information b!t doin opposite thins. *ho is rihtH #he recent

earnins and di"idends reported is history and the seller already en7oyed the benets. ?s a

b!yer yo! are b!yin an !nknown f!t!re.%nvesting is a game o$ robabi!ities and

ossibi!ities but not certainties. ? rational in"estor sho!ld !nderstand this. $f not he is a

damn fool. Stock market is like the ame of poker. ? wise in"estor bets bi only when the

odds are stacked hea"ily in their fa"or. $f not they donIt do anythin.


Dy seein fa"orable probabilities that are reater than enerally appreciated, or ndin

stocks priced at le"els which disco!nt rather f!lly the !nfa"orable probabilities apparent to

all. $n the rst instance the b!yer simply reconi+es a "al!e that others do not see. $n the

second case the b!yer says in eEect, @Since the price of this stock already is disco!ntin the


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worst that can be seen for it, there is no downside risk. ?nd since the so!p is rarely eaten as

hot as it is cooked, the b!yer is likely to et more than he is payin for.A

D!EetIs p!rchase of Cokefalls into the rst cateory and his p!rchase of?merican

3xpressfalls into the second cateory. D!t how can we meas!re what millions of other

in"estors are expectinH 'helps i"es a loical sol!tion for this with three simple

r!les (1)#he "al!e of any sec!rity is the disco!nted present worth of all f!t!re

payments (2)? dollar of income from one f!lly taxable so!rce is worth as m!ch as dollar of

income from any other f!lly taxable so!rce (3)ence it follows that when in"estors pay

more for a dollar of income from one so!rce more than they need to pay to et an

e6!i"alent dollar of income from another so!rce they are expressin implicitly the opinion

that the income stream from the rst so!rce will rise faster or dry !p more slowly than the

income stream from the second so!rce. Otherwise what they do makes no sense.

Stock price has two components to it. One of them is the act!al earnins per share and the

other one is the m!ltiple people are willin to pay for :1 of earnins. >!ltiple is commonly

referred as p/e ratio.

'rice J 3arnins per share K >!ltiple

$maine yo! bo!ht a stock for :10 which is earnin :1 and has a m!ltiple of :10. #he

b!siness is doin really well and the expectations of the market is ex!berant and they bid !p

the m!ltiple to 40. &or this stock to become a 100 baer yo!r earnins needs to increase

by 2 times. #he math is i"en below.

Old 3arnins J :1

Old >!ltiple J 10

Old 'rice J :10 L:1 K 10M

Bew 3arnins J :2

Bew >!ltiple J 40

Bew 'rice J :1000 L:2 K 40M

On the other hand if yo! bo!ht the stock for :100 which is earnin :1 and has a m!ltiple of

100. $f the m!ltiple stays constant Lwhich is "ery rareM then the earnins sho!ld row by 100

times for yo! to make a 100 baer. #he math is i"en below.
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Old 3arnins J :1

Old >!ltiple J 100

Old 'rice J :100 L:1 K 100M

Bew 3arnins J :100

Bew >!ltiple J 100

Bew 'rice J :10000 L:100 K 100M

#he moral of the story is simple. $f yo! pay too m!ch for the stock then for the price to o !p

all the hea"y liftin sho!ld be done by rowin the earnins. >!ltiple reectsmarket psycholoy and it oscillates between extreme fear and reed. One has to be

extremely caref!l to not pay too m!ch for the stock. D!t this simple fact is often forotten.

'eter Nynch explained this concept bea!tif!lly which $ ha"e i"en below.

3xcerpt from One !p on wall street

$f yo! remember nothin else abo!t p/e ratios, remember to a"oid stocks with excessi"ely

hih ones. Go!Ill sa"e yo!rself a lot of rief and a lot of money if yo! do. *ith few

exceptions, an extremely hih p/e ratio is a handicap to a stock, in the same way that extra

weiht in the saddle is a handicap to a racehorse.

? company with a hih p/e m!st ha"e incredible earnins rowth to 7!stify the hih price

thatIs been p!t on the stock. $n 1-;2, >conaldIs was the same reat company it had

always been, b!t the stock was bid !p to :; a share, which a"e it a p/e of 0. #here was

no way that >conaldIs co!ld li"e !p to those expectations, and the stock price fell from

:; to :2, sendin the p/e back to a more realistic 1%. #here wasnIt anythin wron with

>conaldIs. $t was simply o"erpriced at :; in 1-;2.

?nd if >conaldIs was o"erpriced, look at what happened to )oss 'erotIs company,

3lectronic ata Systems L3SM, a hot stock in the late 1-0s. $ co!ldnIt belie"e it when $ saw

a brokerae report on the company. #his company had a p/e of 00P $t wo!ld take "e

cent!ries to make back yo!r in"estment in 3S if the earnins stayed constant. Bot only

that, b!t the analyst who wrote the report was s!estin that the p/e was conser"ati"e,

beca!se 3S o!ht to ha"e a p/e of 1,000.

%$ you had invested in a comany ith a e o$ 1,*** hen +ing rthur roamed

-ng!and, and the earnings stayed constant, youd /ust be breaking even today.
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Quality f !arnings and Management

i"en below is the income statement of Fohn and 'eter. Doth are of same ae and their

income and earnins are also the same. $f $ ask yo! to assin an earnins m!ltiple for them

how m!ch wo!ld yo! assinH

Go! cannot assin the same m!ltiple to both of them. *hyH $ ha"e not i"en yo! the

complete information. Bow take a look at the complete information. $t sho!ld be "ery clear

that FohnIs earnins sho!ld recei"e hiher m!ltiple than 'eter. *hyH Fohn spends a lot of

money in ed!catin himself. ?lso he pays hiher rent which s!ests that he is li"in in a

better comm!nity and he is spendin more on eatin healthy foods. D!t 'eter spends half

his income on amblin and drinks and none on ed!cation. i"en these facts it sho!ld be

ob"io!s that Fohn is likely to earn more in f!t!re and it will res!lt in his earnins rowin at a

faster rate.

*hat is the takeaway lessonH Companies are like people and their earnins "ary so m!ch in

6!ality. ence comparin them blindly is like comparin cos and horseson the basis of

how fast they can r!n. 'helps talks abo!t two kinds of earnins accounting and

concetua!. D!Eett fans sho!ld immediately reconi+e this as nothin b!towners earnins.

ere are few thins e"ery in"estor sho!ld consider when lookin at earnins (1)oes the

company manip!late earnins by c!ttin down its spendin on ) Q (2)oes the company

sells a lot of items !sin credit which increases acco!nts recei"able and earnins (3)o

they b!ild !p in"entory by r!nnin its plants more than its allowed capacity which res!lts inred!cin !nit of cost of prod!ction and increases earnins (4)o they s6!ee+e their

employees to increase earnins (0)o they poll!te their en"ironment by c!ttin corners. $f

yo! answer yes to any of these 6!estions then the 6!ality of earnins is strained. #he reason

is beca!se all these items miht boost earnins in the short term b!t they are awf!l in the

lon term. )emember we are in the lon term ame for 40 years.
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Be"er do b!siness with a man yo! do not tr!st. $f the manaement is not tr!stworthy then

a"oid it like a pla!e. 'helps explains why !sin an analoy from bioloy.


S!ppose yo! meet today an old friend whom yo! ha"e not seen for fteen years. Dioloists

tell !s that there is probably not a sinle cell in either of yo! that was there when yo! last

met. Get yo! ha"e no tro!ble reconi+in each other and recallin matters which interested

yo! both when yo! last met. #his is possible only beca!se each dyin cell is so faithf!lly

replaced by a like cell. So it is with corporations. Bo matter how broadminded we are, how

dedicated to e6!al opport!nity, we tend to hire and promote @our kind o$ eo!e.@

*hen morally derelict men et to the top of reat corporations and stay there for a period of

years, the e"il they do does indeed li"e after them. $ne"itably they brin into the

orani+ation and promote to hiher le"els men like themsel"es. #he moral cancer th!s

introd!ced cannot be extirpated simply by remo"in the e"il eni!s at the top. $t may take a

eneration !nder a ood manaement to p!re the orani+ation of the !nprincipled sharp

shooters bro!ht in by a bad manaement. ence it is !nwise to look for a 6!ick t!rnaro!nd

in any orani+ation whose manaement has demonstrated a lack of moral principle.

!arning Po"er

Stocks o !p and down for many reasons. 3"en their earnins may o !p or down for many

reasons. ?s an in"estor what we sho!ld think abo!t is earnin power. *hat is the diEerence

between earnins and earnin powerH One of the best explanation i"en by 'helps.


3arnins are simply reported prots no matter how obtained. ?s we ha"e already seem,

earnins may rise beca!se of a s!dden, nonrec!rrin s!re in demand, beca!se of a price

ad"ance, beca!se of a chane in acco!ntin practices, beca!se of impro"ement in b!siness

enerally which permits !tili+ation of what pre"io!sly was excess prod!cti"e capacity. Bone

of those reasons reects earnin power any more than the mo"ement of a cork downstream

attests its moti"e power.

-arning oer is cometitive strength. $t is reected in abo"e a"eraes rates of ret!rn

on in"ested capital, abo"e a"erae prot marins of sales, abo"e a"erae rates of sales

rowth. $t shows to best ad"antae in new or expandin markets.

&ail!re to distin!ish between ephemeral earnins !ct!ations and basic chanes in earnin

power acco!nts for m!ch o"er tradin, many lost opport!nities to make 100 for one in the

stock market.

#o check if the rm has earnin power e"ery in"estor sho!ld see 10 year trends for (1)Sales

rowth (2)'rot marins (3))et!rn on e6!ity (4))et!rn on in"ested capital (0))atio of
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sales to in"ested capital ()D!ild!p of book "al!e. *e sho!ld make s!re that they are not

showin sins of weakness. )ead the pararaph i"en below se"eral times. #o me this is the

secret of h!ndredfold ret!rns.


)eal rowth is as simple and certain as arithmetic if the book "al!e of a stock is increased by

retained earnins while the rate of ret!rn on in"ested capital remains constant. #o ill!strate,

let !s ass!me o!r company has a book "al!e of :10 a share, with no senior sec!rities, and is

earnin 1 percent on its in"ested capital. $n this example, book "al!e and in"ested capital

per share are the same. Net !s ass!me f!rther that o!r company pays no di"idends.

?t the end of the rst year per share book "al!e will be :10 pl!s 1 percent of :10, or :

11.0. ?t the end of the fth year book "al!e will be :20, and at the end of the tenth year

:40. $f o!r company can contin!e to earn at the same rate on this in"ested capital, its

earnins in ten years will be fo!r times the startin !re.

$f o!r company pays o!t a third of its earnins in di"idends, the amo!nt plowed back each

year will be 10 percent per share book "al!e. ?t that rate it will take nearly fteen years,

instead of ten, for book "al!e and earnins to 6!adr!ple.

3arnin at 1 percent and payin no di"idends, o!r stock wo!ld row one h!ndredfold in

thirtythree years. 3arnin 1 percent and payin a third of earnins in di"idends, o!t stock

wo!ld take more than fortyeiht years to m!ltiply its assets and earnins by 100.

Chipotle >exican rill is a chain of resta!rants, speciali+in in b!rritos and tacos. $ ha"e

been eatin b!rritos there since 200 and the resta!rant is always crowded. $ ne"erbothered to read their ann!al report once and now $ am s!ckin my th!mb after lookin at

its earnin power which is i"en below. $ts ret!rn on in"ested capital is "ery solid and

impro"ed o"er the years. Dook, )e"en!e, and 3arnins all trendin !p. Nook at the '/3 in

200. $t was 4 and an !ncritical mind wo!ld ha"e re7ected the stock statin that it is

expensi"e. ? critical in"estor wo!ld ha"e asked (1)ow many new stores can they open

before sat!ratin in the RS (2)?re they expandin internationally (3)?re the stores

crowded (4)o they ha"e a moat. Dy doin that he wo!ld ha"e seen the enormo!s rowth

potential in the stock.

&rom 200 to 201% earnins increased by %0.0= and '/3 stayed almost at th!s earnins

rowth contrib!tin to stock price increase from :; to :%0.;. #his represents a

compo!nded rowth of %2.1;=.


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#losing $houghts

D!yin riht will do little ood !nless yo! hold on. D!t holdin on will do yo! little ood 5 and

may do yo! reat harm 5 !nless yo! ha"e bo!ht riht. 100 to 1 in the stock marketis one

of the best in"estin books $ ha"e read. #he book ends with the followin statement.$n ?lice in *onderland one had to r!n fast in order to stand still. $n the stock market, the

e"idence s!ests, one who b!ys riht m!st stand still in order to r!n fast.

100 to 1 by #homas 'helps, in - points.

11/12/2014N3?3 ? CO>>3B#
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1. #hose of !s who ask little of life, et little. #hose who ask m!ch, et m!ch, b!t those

who ask for too m!ch et nothin.

2. $f yo! donIt b!y what has to be sold, yo! ne"er really need to sell anythin.

%. #he top 4 criteria

1. $t m!st be small. L Sheer si+e mitiates rowth M

2. $t m!st be relati"ely !nknown. L 'op!lar rowth stocks are "ery likely to

perform, b!t one has to pay for expected rowth too m!ch in ad"ance M

%. $t m!st be a !ni6!e prod!ct that does an essential 7ob better, cheaper and/or

faster than before or pro"ide a new ser"ice with reat and lon contin!ed sale

increases.

4. $t m!st ha"e a stron, proressi"e, research minded manaement.

4. Nook for stocks that professional manaers like, b!t are not s!re of.

. Rnless a company that is operatin in a forein co!ntry is cond!ctin itself so that

people of that co!ntry are better oE net, after the company has realised its prot, than

they wo!ld be if they had nationalised it and ran it themsel"es, the company is li"in onborrowed time.

. Stay with yo!r most s!ccessf!l stock in"estments as lon as they are increasin their

earnins.

;. #ry to be associated with people whose self interests are almost parallel to yo!rs.

#herefore it is probably more important to see who is talkin, rather than what he is

talkin.


12/28

21. #he notion that cash is safe and stocks are !nsafe is a fallacy. $nation loss is real.

22. ?nother fallacy is that a"oidance of risk is more important that sei+!re of opport!nity.

Opport!nity can reward yo! 100 fold, risk on the other hand can only make yo! loose 1x

of yo!r capital.

2%. Be"er for a nonin"estment reason sho!ld one take an in"estment action. S!ch as

1. >y stock is too hih.

2. $ needed to set oE S#CN.

%. >y stock is not mo"in. Others are

4. Bew manaement.

. Bew competition.

. $ ha"e already made 100 times prot.

24. $f yo! think somethin is attracti"e in the market, b!y it. $f it falls lower b!y more.

#hese diEerences may be the ones that make 0x instead of 40x, b!t it is not worth

missin the opport!nities alltoether.

2. 3"en if one knew what the stock market is oin to do, it will still be more protablein 7!st keepin yo!r head down and contin!e to stock pick.

2. #he more s!ccessf!l one is at market timin, the reater is the temptation to rely on

it and th!s miss m!ch reater opport!nities of b!yin riht and holdin on.

2;. >ost deception is bad, b!t self deception is worse beca!se it is done to s!ch a nice

!y M

2


13/28

%y ad"ice to b!y riht and hold is to co!nter !nprod!cti"e acti"ity, not to

recommend p!ttin them away and forettin them.

%-. $f a company rows at 20= for the next years, it will row x in the next 10 years,

and -,100x in the next 0 years. #ry to imaine if the company can row that bi. ? lare

factor is also the c!rrent si+e of the company, which will help determine that.

40. *hen yo! pay for a stock yo! are not only payin for a"erae rowth, b!t more

importantly for s!perior rowth o"er the f!t!re. #herefore yo! ha"e to e"al!ate the

company in a si+e times its c!rrent si+e, after < years and check if it still makes

sense.

41. Go! can almost win any ar!ment, if yo! are allowed to make any ass!mptions.

42. onIt listen to opinions, !nless yo! are also i"en an insiht into the ass!mptions

made for makin those opinions.

4%. $n in"estin one always deals with probabilities and possibilities, and no certainties.

44. )isk is an essential element in the 6!est for capital ain. onIt be dismayed by a

loss. )econise it as one of yo!r costs on the way to a net ain.4. ? perfect track record can almost certainly mean that yo! are also lettin a lot of

ood opport!nities pass yo!.

4. #here is no system, philosophy that will keep an in"estor from makin mistakes or

keep him harmless when he is wron. *e ne"er risk o!r money, !nless the odds are

larely in o!r fa"o!r, o!r inescapable losses sho!ld therefore look small compared to o!r

prots.

4;. One of the most persistent ill!sions of the b!siness of in"estin is that information is

absol!tely "ital. i"en that ass!mption, e"ery trade needs a b!yer and seller, and if both

relied on the same information that the company is i"in o!t, there will hardly be the

6!ant!m of trades that persist in the market today. #herefore, ass!min that both sidesof the trades are made by instit!tions, its almost certain that opinions on the stock matter

way more than common or rather secret information.

4


14/28

. *ise in"estors donIt b!y stocks 7!st beca!se they are oin !p, they b!y is beca!se

the c!rrent cost will seem extremely cheap in the years to come, and di"idends yields of

the f!t!re prices may still be 12=, b!t will be lare on the in"estment price.

. #he reatest ains in the market ha"e been made by sim!ltaneo!s increase of

earnins alon with increase in '3.

;. $ncreased earnins is 7!st arithmetic proression, both are almost eometric

proression.


15/28

2. ?ll laws made by men, can be chaned by men, will be chaned by men ass

soon as people decide that they wo!ld be better oE if the laws are chaned.

%. Bo oneIs title or riht to property is worth anymore than his fellow creat!res

willinness to defend it.

4. $f a company seems to be operatin in inorance or deance of these %

principles, donIt stop and !re 5 )RB.

;1. #here are % approaches to in"estin

1. 'sycholoical

2. Statistical

%. Spirit!al

;2. )emember that a man who will steal from yo!, will steal from yo!.

;%. ?sk yo!rself if the company yo! plan to in"est into is oin to make the world a

better place. $f no, a"oid it like the pla!e.

;4. Bo matter how protable, stay away from men, companies and "ent!res that are

based on defra!din rather than helpin their c!stomers.;. >ost fra!dsters are not so selsh as myopic, not so m!ch reedy as st!pid.

;. *hen morally derelict men reach the top of corporations, and stay there for a a few

years, the e"il done by them li"es on.

;;. $t is th!s !nwise to be too excited abo!t an a 6!ick t!rnaro!nd in any oranisation

whose manaement has displayed a lack of moral principle.

;


16/28

arins

%. )o3

4. )oC3

. Dook "al!e b!ild !p

-4. *hat mathematics cannot do, common sense sometimes can.

-. $n ?lice in *onderland one had to r!n fast to stand still, in the stock markets, one

who stands still can really make money fast.

100 to 1 in the Stock Market (1)


17/28

by Chetan Parikh

Back

I came across a stock-market classic, 100 to 1 in the Stock Market by Thomas

William Phelps, gien to me by a !rien"#

$ere are some parts that I marke" !rom the book%

1#The moral, o! co&rse, is that those o! &s 'ho ask little o! li!e get little# Those

'ho ask m&ch get m&ch# Those 'ho ask too m&ch gets nothing#

(# )ort&nes are ma"e by b&ying right an" hol"ing on#

*# Mr# +arretts !irst goal 'as to increase his capital in or"er to increase his
http://capitalideasonline.com/articles/index.php?id=154http://history.back%28%29/http://www.amazon.com/100-stock-market-distinguished-opportunities/dp/0070497729/ref=sr_1_1?s=books&ie=UTF8&qid=1408363660&sr=1-1&keywords=100+to+1+in+the+stock+markethttp://capitalideasonline.com/articles/index.php?id=154http://history.back%28%29/http://www.amazon.com/100-stock-market-distinguished-opportunities/dp/0070497729/ref=sr_1_1?s=books&ie=UTF8&qid=1408363660&sr=1-1&keywords=100+to+1+in+the+stock+market


18/28

po'er to help others# $aing no chil"ren he 'as not heir-sel!ish# $e "eci"e" the

'ay to increase his saings !ast eno&gh to co&nt at his age 'as to inest in a

!ast-gro'ing company# $e began his search !or one that met these !o&r criteria%

1# It m&st be small# Sheer sie militates against great gro'th#

(# It m&st be relatiely &nkno'n# Pop&lar gro'th stocks may keep on

gro'ing b&t too o!ten one has to pay !or e.pecte" gro'th too many years

in a"ance# Probably to meet this criterion the stock he 'ante" 'o&l" be

tra"e" oer /the-co&nter rather than on any stock e.change#

*# It m&st hae a &ni&e pro"&ct that 'o&l" "o an essential ob better,

cheaper, an"2or !aster than be!ore, or proi"e a ne' serice 'ith

prospects o! great an" long-contin&e" sales increases#

3# It m&st hae a strong, progressie, research-min"e" management#

3# 4s +eorge 5# $olton, retire" chairman o! 'hat is no' Mobil 6il 7orporation,

p&t it, 8nless a company operating in a !oreign co&ntry is con"&cting itsel! so

that the people o! that co&ntry are better o!! net, a!ter the company has realie"

its pro!it, than they 'o&l" be i! they nationalie" the company an" ran it

themseles, that company is liing on borro'e" time# Mr# $olton a""e" that

s&ch a company not only m&st operate to bene!it the !oreign co&ntry b&t m&st

see to it that the people o! that co&ntry kno' it is "oing so# 4n" een then, Mr#

$olton concl&"e", a company operating abroa" may !in" itsel! in hot 'ater

&nless its representaties can 'in !or themseles personally the respect an"

!rien"ship o! the nationals 'here they 'ork#

5. 9.cept to learn !rom e.perience, one sho&l" neer 'aste time looking back,

Mr# Pettit replie"# In 1:(; I personally o'ne"


19/28

"iscretionary acco&nts, sho&l" "e-emphasie market timing# That is beca&se

een i! the market !orecaster is right, he sel"om can pers&a"e others to act on

his opinion# Ao one inten"s to b&y stocks at the top o! the market, or to sell them

at the lo's# 6n the contrary, b&ll market highs are ma"e 'hen the o&tlook !or

still higher prices is most broa"ly conincing# 7onersely bear market lo's arema"e 'hen the likelihoo" o! still lo'er prices seems oer'helming to the

prepon"erance o! reasonable, 'ell-in!orme" moneye" men# Since b&ll an" bear

markets are to a consi"erable e.tent mani!estations o! changes in mass

psychology it is !at&o&s !or anyone to beliee that he can pers&a"e a

representatie gro&p o! inestors to sell stocks 'hen that mass psychology is

b&llish, or to b&y stocks 'hen it is bearish# The 'ise pro!essional, 'ho

&n"erstan"s this, concentrates on stock selection# Most inestors are !ar less

emotionally inole" in "eci"ing 'hether the market is going &p or "o'n# To

clinch the arg&ment, it is rea"ily "emonstrable that !ar more money can be ma"e

by goo" stock selection than by goo" stock market timing#

# )or the in"ii"&al or instit&tion really o&t to make a !ort&ne in the stock

market it can be arg&e" that eery sale is a con!ession o! error# I 'rite this !&lly

realiing that err is h&man# I "o not mean to criticie anyone !or making a !e'

errors o! the kin" I hae been making !or !orty-!ie years# B&t a problem 'ell-

"e!ine" is hal! sole"# C&st as I garnere" no iory by co&nting g&inea hens as

elephants, so shall I gather no !ort&ne in the stock market by co&nting lost

opport&nities as tra"ing pro!its# The shorter the time a stock has been hel"

be!ore it is sol", the more palpable the error in b&ying it / go-go !&n"s managers

to the contrary not'ithstan"ing#

:# Det this not be constr&cte" as a"ocating hanging on to eerything 'illy-nilly#

The only thing 'orse than making an inestment mistake is re!&sing to a"mit it

an" correct it# 8s&ally the !aster an error is recti!ie" the less it costs# B&t it is still

an error, a lost opport&nity, compare" 'ith b&ying right an" hol"ing on#

10# In a b&ll market correcting mistakes o!ten means taking pro!its# B&t 'hen'e "o so let &s not ki" o&rseles 'e are making money# The tr&th is 'e are

ackno'le"ging missing astly bigger opport&nities an" inc&rring a capital gains

ta. liability to boot#


20/28

Cosh Billings

11# Cosh Billings once sai" o! a man he a"mire" 'ith great restraint% Thetro&ble 'ith him aint that he is ignorant, b&t that he kno's so m&ch that aint

so#

1(# 4s the saying goes, Patience is a irt&e, hae it i! yo& can# Sel"om !o&n" in

'omen, neer !o&n" in man#

1*# 4gain an" again this s&rey o! the big 'inners in the stock marketemphasies that it is more important to be right than to be &ick#

13# The concl&sion seems inescapable that 'hat one b&ys in the stock market is

m&ch more important than 'hen he b&ys it#

1;# Wall Street has its !a" an" !ashions &st as Paris "oes# 4 stock that is in

og&e may "o a great ob !or its o'ners 'itho&t attracting m&ch spec&latieattention#

1


21/28

!orm an absence o! inertial#

1@# In h&n"re"s o! "i!!erent sec&rities 'e hae seen "emonstrate" the 'is"omo! b&ying right an" hol"ing on# The concl&sion seems inescapable that i! one can

b&y right, no amo&nt o! tra"ing or s'itching therea!ter is likely to pro"&ce

res&lts e&al to 'hat he can hae by simply hol"ing on# By "oing so he aoi"s

paper 'ork, brokerage commissions, an" capital gains ta.es# $e loses the !&n o!

tra"ing, o! matching his h&nches abo&t 'hat the market 'ill "o tomorro'

against the h&nches o! eeryone else 'ho is tra"ing, the sel!-satis!action o!

making a !ast b&ck o&t o! thin air#

Patrick $enry

1# Patrick $enry met that one hea"-on in a speech to the 5irginia conention in

St# Cohns 9piscopal 7h&rch, =ichmon", 5irginia, on March (*, 1@@;% I hae b&t

one lamp by 'hich my !eet are g&i"e", an" that is the lamp o! e.perience# I kno'

o! no 'ay o! &"ging the !&t&re b&t by the past#

1: Beca&se eery stock b&yer 'ants to make money, it is almost a tr&ism thatnothing kills a money-making opport&nity !aster than its 'i"esprea"

pop&larity# This applies &st as s&rely to gro'th stocks as it "oes to )lori"a real

estate# What shall it pro!it a man to b&y a sock 'hose earnings &a"r&ple in the

ne.t ten years i! he has to pay !or !o&r times the c&rrent earnings no'G#


22/28

(0# Incontestably, gro'th stocks are highly attractie i! they contin&e to gro'

as !ast as or !aster than they hae been gro'ing an" i! b&yers contin&e to e.pect

them to contin&e to gro' as !ast or !aster an" i! the rate at 'hich !&t&re earnings

an" "ii"en"s m&st be "isco&nte" "oes not increase materially#

(1# The mere !act that a stock has been a gro'th stock !or ten or !i!teen years is

no 'arranty that it 'ill contin&e to gro' een one more year#

((# 8nlike "ogs, not eery stock has its "ay# In Wall Street a stock that "oes not

hae its "ay is calle" a "og#

(*# 9en 'hen a stock "oes hae its "ay, there is no ass&rance that the stock

'ill be a lea"er !oreer#

(3# $o' "o I reconcile that statement 'ith my a"ice to b&y right an" hol" onG

Thats easy# 4s 'e hae seen, h&n"re"s o! stocks hae risen more than one

h&n"re"!ol"# 4 !e' hae risen one h&n"re"!ol", an" then hae gone on to "o&ble

or triple in price a!ter that# B&t tomorro' is a ne' "ay !or eery company, eery

sec&rity# 9ternal igilance is the price not only o! liberty b&t i! solency# Mya"ice to b&y right an" hol" on is inten"e" to co&nter &npro"&ctie actiity, not

to recommen" p&tting them a'ay an" !orgetting them#

(;# The point I am trying to make is not ho' rich yo& an" I co&l" be i! o&r

!oresight 'as as goo" as o&r hin"sight# To think that 'ay is an &npleasant as

'ell as &npro!itable 'ay to spen" time#


23/28

Aorris Earrell

(


24/28

(#When yo& pay in a"ance !or the earnings o! a stock to triple or &a"r&ple,

as yo& "o 'hen yo& b&y it at three or !o&r times the price-earnings ratio o!

the Eo'-Cones In"&strial 4erage, yo& sho&l" !oresee not only the gro'thyo& are paying !or b&t !&rther aboe aerage gro'th beyon" that# This

means that yo& m&st eal&ate the competitie stat&s o! the company not

as it is to"ay b&t as it 'ill be si. to eight years !rom no', 'hen it is three

or !o&r times bigger#

(# Ao one b&ys a stock to "o someone else a !aor# Ao one sells a stock to let

someone else in on a goo" thing# Most tra"es are res&lt o! hea"-on collisions

bet'een "iametrically opposite opinions abo&t the same sec&rity at the same

instant in time#

(:# 6!ten both the b&yer an" the seller are 'ell in!orme"# $o' can t'o 'ell-

in!orme" people come to opposite concl&sions abo&t the same stock at the same

priceG 8s&ally it is beca&se they hae ma"e "i!!erent ass&mptions abo&t its

!&t&re# 6ne may ass&me that its earnings 'ill gro' at the compo&n"e" ann&al

rate o! 1; percent !or years to come# The other may apprehen" a slo'ing "o'n in

the gro'th rate# 6r one may be conince" that in!lation in 4merica is

&ncontrollable# The other may ass&me that 'hile the 4merican people act slo'ly

they act 'isely an" co&rageo&sly 'hen the peril becomes clear#

*0# Aeer min" opinions# They are not 'orth a "ime a "oen# Try to get the

reasons !or them, the ass&mptions &n"erlying them#

Ao one kno's or eer can kno' !or s&re 'hat the !&t&re hol"s# I! the 4lmighty

ha" inten"e" &s to kno' that, he 'o&l" hae e&ippe" &s 'ith another sense

'hich none o! &s has# The Irishman highlighte" the matter 'hen he sai", S&rean" I 'ish I kne' 'here I 'as going to "ie# I" neer go near the place# I! 'e

hae no certainty as to 'hen or 'here o&r o'n li!e 'ill en", ho' can 'e

pres&me to be s&re o! !&t&re "eelopments 'ith regar" to matters not nearly so

close to &sG


25/28

Is this a co&nsel o! "espairG Aot a bit o! it# It is simply a recognition that in

inesting 'e "eal al'ays 'ith probabilities an" possibilities, neer 'ith

certainties# It !ollo's as night the "ay that in inesting the o""s are all

important#

*1# $ar"'ick Stires has been a partner in Sc&""er, Steens F 7lark, probably

the 'orl"s ol"est an" largest inestment co&nsel !irm, !or 30 years, the perio"

coere" by this book# )or almost that many years he has been a member o! the

B&siness 7o&ncil, one o! the prime links bet'een b&siness an" the

4"ministration in Washington# $is inestments philosophy has been "eelope"

an" tempere" by t'o maor "epressions, the Secon" Worl" War an" the still

&nresole" battle against in!lation# =isk, he says, is an essential element in

the inestment &est !or capital gain# Eont be "ismaye" by a loss# =ecognie it

as one o! the costs 'itho&t 'hich yo& co&l" not hae net gain#

4t a bri"ge I hae been tol" that i! I am not set occasionally I am &n"erbi""ing /

not risking eno&gh to make the best possible score#

There is a legen" that the !o&n"er o! the Morris Plan banks once calle" a

manager to acco&nt !or haing no losses#

To make s&ch a recor", the !o&n"er sai", yo& m&st hae been t&rning "o'n

goo" loans# Ae.t year I 'ant to see some loses / not too many, min" yo&, b&t

eno&gh to sho' that yo& hae been risking something on yo&r &"gement#

*(# This is not to say that risk m&st al'ays be commens&rate 'ith the pro!it#

The art o! spec&lation in one sense is the ability to recognie 'hen a seeming

risk is not a real risk or 'hen a real risk is not nearly as great as the stockmarket anticipates# 9en so an inestor 'o&l" hae to be starry-eye" in"ee" to

think that he co&l" t&rn H10000 into a million "ollars 'itho&t taking any chances

o! losing his money#


26/28

**# 6ne o! the most persistent ill&sions o! the b&siness o! inesting is that

in!ormation is all yo& nee" to make money# 6rganiations that sell in!ormation

!oster that ill&sion# It is goo" !or their b&siness#

I! one &st stops to think abo&t the t'o parties to eery tra"e, the !allacy in this

notion that in!ormation is tantamo&nt to money-making inestment "ecisions

become pain!&lly apparent# )or eery b&yer there m&st be a seller# )or eery

seller there m&st be a b&yer# Sometimes an in!orme" b&yer has the goo" l&ck to

meet an &nin!orme" seller an" ice ersa# B&t it is a goo" g&ess that most o! the

time / practically all o! the time 'here instit&tions are on both si"es o! the tra"e

/ both b&yer an" seller are in!orme"# I! in!ormation is eerything, ho' can t'o

in!orme" pro!essionals come to opposite concl&sions abo&t the same sec&rity at

the same price at the same instant in timeG

*3# 4 secon" reason 'hy one in!orme" inestor may sell 'hat another in!orme"

inestor is b&ying is that no one can be in!orme" abo&t the !&t&re# Since all the

"ecisions as to the !&t&re m&st be base" on ass&mptions, in!orme" inestors

may make "i!!erent ass&mptions an" hence come to opposite concl&sions abo&t

b&ying or selling a partic&lar stock at a partic&lar moment#

*;# 4 thir" reason !or "i!!erence o! opinion among in!orme" inestors is that noone eer is or can be !&lly in!orme"# The inestor 'ho is : percent in!orme"

may come to the opposite concl&sion !rom that reache" by one 'ho is :: percent

in!orme"#

*


27/28

Coseph P# Jenne"y

*@# In 1:


28/28

bo&ght it back#

*# 9en i! ones in!ormation is complete an" acc&rate, it can still mislea"inginestment 'ise i! it is late# 4 lemon that has been !lattene" by a steam roller

has more &ice in it that a piece o! in!ormation the stock market has alrea"y

"isco&nte"# To &se another analogy, the "i!!erence bet'een so"a 'ater that has

&st been &ncappe", an" so"a 'ater that has been le!t all night# C&st as &ncappe"

so"a 'ater soon loses its !i, so &ncorke" ne's !a"es into history or obliion#

*:# $o' can one tell 'hether his in!ormation is !resh or staleG 4s is tr&e o! so

many aspects o! the inestments b&siness, there is no 'ay to be s&re# 9en i!

10000 inestors hae hear" the ne's ahea" o! yo&, it may still proe pro!itableto yo& i! 10 million inestors are going to hear it an" act on it a!ter yo

30# =eally !resh ne's / ne's to 'hich the stock market has not reacte" / can

in"ee" be gol"en# Ae's that comes as no s&rprise to s&bstantial market interests

may yet hae eno&gh kick in it to be siler to the remain"er# Ae's that has been

!&lly "isco&nte" is lea" an" those 'ho act on it are "ea"#

100 to 1 in the Stock Market summary

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Transcript of 100 to 1 in the Stock Market summary