What Investors Get Wrong: Chris Mayer, From Amazon to Space — Jeff Bezos, & Lessons Learnt From 2021 by The Good Investors

Hey Reader - Thomas here.

Good day to my fellow compounders!

In 3-Bullet Sunday, I share with you the three most interesting piece of article, video or podcast I came across for the week on investing and growth philosophies.

Enjoy!

I. What Investors Get Wrong: Chris Mayer on Dividends, Noise, and the Power of Reinvestment

A long-term winner has a few engines for compounding value:

1. Long growth runway
2. Shares buyback
3. Multiple expansion

It's usually a combination of the two that boosts the stock in the long run, but it most certainly always involves the first point—a long growth runway coupled with a high return on capital.

Chris Mayer on 100-baggers key trait:

What key traits did you find most common among companies that achieved 100-bagger status?

Big growth. Maybe obvious, but almost all of these 100 baggers become substantially bigger businesses over time. Of course, you can't just have growth. And that gets to the key feature – which is a high return on capital, earned repeatedly over a long period of time.

Think about it conceptually: If you start with $10,000 and earn 20% on that in year 1, then you have $2,000 in profit. If you can reinvest the $2,000 then you have $12,000 invested for year two. Another 20% in year two takes you to $14,400. You do that for 25 years, you have your 100-bagger.

Obviously, I'm vastly simplifying. There are taxes and other things to consider here. But it gives you your north star. Everything should be analyzed in this framework: compounding capital for a long time. And so, if you do think like this, you will find your focus shifts to things like competition and capital allocation. Meanwhile, other factors most investors slave over – like the present multiple of earnings or cash flow – tend to take a back seat.

Another important factor was that many of the 100 baggers had talented entrepreneurs driving them at least in the early days.

>> Click here to read Chris Mayer on Dividends, Noise, and the Power of Reinvestment

II. The Interview: From Amazon to Space — Jeff Bezos

Great interview by Jeff Bezos. He spoke about his remuneration, decisions at Washington Posts, solving U.S. debt crisis, space, AI (and how involved he is at Amazon, which makes me very happy as a shareholder).