Chris Mayer is the author of 100 Baggers and the co-founder and portfolio manager of Woodlock House Family Capital.
There are so many things to learn from him, but if I must distil them, then these are my top five:
Unsexy industries can be money makers
Mayer doesn’t hesitate to invest in what many would consider unattractive industries. He currently holds stakes in companies operating in sectors like shipping and manufacturing, which are often overlooked because of their cyclical nature and perceived lack of glamour.
Despite the challenges they face, Mayer emphasizes these industries provide substantial opportunities for discerning investors. The key is to focus on the fundamentals of the business and its ability to generate cash flow, rather than getting caught up in industry labels.
The best way to find valuable companies is to look past the obvious. Understand the core aspects of different industries and find companies within them that have a clear edge over competitors.
Long-term shareholder returns: It’s about the business, not the buzzword
Mayer argues terms like “value investing” and “growth investing” are often misused and can lead investors down the wrong path.
His perspective on long-term shareholder returns revolves around a few core principles. He asserts that the primary driver of long-term returns is the ability of a company to reinvest capital at high rates of return. Companies that consistently allocate capital efficiently tend to outperform over the long haul.
Mayer also highlights the significance of competitive moats, which can lead to sustained profitability and higher returns for shareholders.
These principles are much more important than whether a company is classified as a “value” or “growth” stock.
Thinking beyond the numbers: Quality matters
When it comes to assessing a company’s financial health, Mayer advocates for a nuanced approach. Rather than fixating on the numbers themselves, he urges investors to delve into what those numbers actually represent.
For instance, while a high return on equity (ROE) may seem impressive, it’s important to grasp the underlying factors behind its attainment. Mayer suggests examining whether the ROE results from genuine operational efficiency or if it’s artificially inflated by high leverage.
By contextualizing financial metrics, investors can better understand a company’s true performance and potential risks.
Scepticism towards accounting earnings
Mayer cautions investors against taking accounting earnings at face value. He points out that accounting practices can sometimes distort a company’s true economic reality.
Non-cash items like depreciation and amortization can impact earnings, as can aggressive revenue recognition and expense deferrals. Mayer encourages investors to look beyond reported earnings and consider other indicators, such as cash flow and free cash flow, which accurately reflect a company’s financial health.
By doing so, investors can avoid being misled by accounting anomalies and make more informed investment decisions.
The power of delayed reaction: Avoiding the herd mentality
Mayer believes that investors should develop a “delayed reaction” to market news and events. This means avoiding the urge to buy or sell stocks based on the latest headlines or trends.
Rather, he supports a composed and logical approach, giving ample time to fully analyze the situation before making any moves. This delayed reaction can prevent emotional responses that often lead to poor investment choices.
By remaining composed and taking time to analyze new information, investors can make more thoughtful decisions, ultimately leading to improved results.
After gleaning wisdom from Chris Mayer, I feel like Indiana Jones after discovering the Ark of the Covenant... covered in metaphorical dust, a little wiser, and maybe slightly terrified of booby traps (looking at you, accounting shenanigans).
The key takeaway?
Don’t be afraid to get your hands dirty and dig deeper – after all, the most valuable treasures are often hidden in the least glamorous places. So, put down the hot stock tip from your friend and grab your metaphorical fedora – it’s time for some real investing spelunking!
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