Finding stocks that return 100-to-1 on your investment may seem like a dream.

The financial implications for individual investors are substantial. After all, that kind of return on a single investment turns $10,000 into $1 million dollars - life-changing results. A single 100 bagger in a portfolio of 20+ stocks can make up for a LOT of mistakes. Two 100 baggers in that portfolio and early retirement becomes a real possibility.

But here's the thing. It is NOT impossible to find these!

One of my key inspirations is Christopher Mayer's book 100 Baggers: Stocks That Return 100-to-1 And How To Find Them.

In his book, Mayer lists out all the stocks that returned 100-to-1 over a 50 year period from 1962-2014. Then, he digs into the list to generate a handful of key components to each of the stocks. Just as importantly, he lists a number of critical behaviors that investors need to maintain in order to reach those 100-to-1 results.

In this article, I'll highlight some of his findings and the key points of the book. If you are interested, I HIGHLY recommend picking up the book on Amazon or finding a copy somewhere. It is an under-rated gem in the investing book world, a handbook for the kind of investing we are looking to do here.

100 Baggers Are Not Impossible - And Not Even That Rare

How many different stocks would you suppose returned 100-to-1 over a 50 year period? A 20 year period?

One of the most enlightening findings in the book was the fact that these kinds of stocks are not particularly rare. 365 different stocks accomplished the feat within the 50 year review period.

Even over an average investor's career, this feat is very doable. Of those 365 stocks, over 100 of them grew 100-to-1 in less than 20 years.

For many in the list, a 100-to-1 return was just the beginning over that 50-year stretch. Walmart (WMT) returned 12,000x. Altria (MO) returned 15,000x. The "poster child" for great investments, Warren Buffett's Berkshire Hathaway (BRK-B), returned an incredible 18,000-to-1 on investment!

Heck, even "1,000 baggers" were not that rare. There are 62 of them on the list! Note: a 1,000 bagger turns a $10,000 investment into... $10 million dollars.

Bottom line? Searching for 100 baggers is not a "needle in a haystack", "win the lottery" type of endeavor. They DO exist, and you CAN find them!

Some Hallmarks of a Potential 100 Bagger

Much of Mayer's book is dedicated to outlining the characteristics of potential 100 bagger investments.

I felt he does a very good job keeping these traits both easy to understand, and relatively straightforward to identify.

Here are some of the traits Mayer outlines. These just might sound somewhat familiar...

1. Revenue Growth. Essentially all of Mayer's 100 baggers delivered substantial revenue growth for long periods of time. Look for companies that have large addressable markets with plenty of room to grow sales for decades.
2. (Reasonably) Small Starting Size. All markets are limited, and sometimes firms are just too large to be able to grow at rapid rates for long periods of time. A firm valued at $2 trillion like Apple (AAPL) is never going to reach $200 trillion - that's larger than the world's economy ($135 trillion)! Mayer suggests looking in the $1 billion and under market cap range.
3. (Reasonably) Low Starting Valuation. Mayer calls business growth combined with stock valuation growth the "twin engines" of a 100 bagger. If a company grows 20x but its price-to-sales (P/S) multiple stays flat, you get 20x on your investment. BUT, if a company grows 20x, and its P/S multiple expands from 1 to 5, bingo... a 100 bagger.
4. Owner/Operator Leadership. A disproportionate number of the 100 baggers in the study were led by founder CEOs with sizable ownership in the company. Mayer felt these firms more reliably made decisions that were long-term oriented and capital efficient.
5. Economic Moat. In order to defend profit margins and returns on capital against the competition, these firms had to possess some kind of durable competitive advantage or "economic moat". 
6. High Returns On Capital. More than any other factor, the ability to reinvest cash flows at high rates of return was CRITICAL to 100 baggers. Every study and successful manager Mayer interviewed pointed this out as the #1 trait.

If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you'll end up with a fine result. - Charlie Munger, Berkshire Hathaway Vice Chairman and legendary investor.

The Most Important Thing You Must Do To Get 100 Baggers

All of the stock characteristics are well and good, but Mayer also harps on probably the most important investor trait needed to "bag" a 100-to-1 stock.

That trait is simple but rare: patience.

The average 100 bagger in the study took about 26 years to get there. The real power in holding a great company is the compounding effect. The book shows how selling one of these after 20 years might net you a 40x return - not bad - but just a few more years of compounding and you've more than DOUBLED that result.

Compound interest is the eighth natural wonder of the world and the most powerful thing I have ever encountered. - Albert Einstein, Genius.

The chapter in the book talking about the "coffee can" portfolio is pretty powerful. It's amazing how much laziness pays off in stock investing!

Conclusion

I highly recommend 100 Baggers: Stocks That Return 100-to-1 And How To Find Them. It is one of the better long-term, business-focused investing books I've read in some time. It is also written in a straightforward, easy-to-understand language that investors of all experience levels can grasp. A 100 bagger or two in your portfolio can be life-changing - so why not spend some time looking for them?