This has been one of the most talked about books across various Value Investing circles and will possibly lead to a lot of debates and me being thrashed. I am no great practitioner of Long Term Investing but trying to learn as much as possible so my views are totally useless but it better be honest than to glorify a worthless book.
The best part about this review is I have not read the book beyond the 50-70% as after a point it became way too much about quotations/price moves and no learning. Just glanced through some chapters.
In 100 to 1 in the Stock Market, Thomas Phelps discloses the secrets and strategies to increasing your wealth one hundredfold through buy-and-hold investing.
It lists down all the stocks which went up 100x between 1932 till 1971.
The scenario in USA in 1932
- 13 million Americans unemployed.
- More than 24.5% of the population are unemployed
- 10s of thousands load up all belongings and live in cars going from place to place looking for work
- The Average Annual Yearly Income in 1932 was 1400-1600 dollars if you had a job.
- A new house would roughly cost 6000-7000 dollars.
In those times i believe people were more worried about having a job to pay for food rather than buy stocks.
The Dow Jones and US Stock Market scenario in 1932.
- Dow Jones from the peak of 1929 had fallen 90% in absolute value by 1932 🙂 i.e 380 to 40 !!
There can be no better point to start investing and never ever will be. We have not seen a 90% drop in any global market since then.
The Disclosure Norms in 1932.
Data source -
- Central Railroad, Westinghouse, Singer, Gillette and the National Biscuit Company provided
either no balance sheet, no income statement, or neither (Ripley, 1927, Hawkins, 1934). For the
modern observer, it is difficult to imagine public trading in a stock without income statements
- For instance, banks and insurance companies sometimes sought to avoid the disclosure requirements and liquid markets on the grounds that fluctuations in their stock price might reduce depositor confidence, harming the value of the firm. Absent federal regulation, exchanges imposed their own disclosure requirements on
- As of 1934, only about half of all firms disclosed sales and the cost of goods sold, while 90% of firms disclosed depreciation expense, current assets and current liabilities (Benston, 1973).
Hope now you guys get it Why the first book on Fundamental Analysis by Benjamin Graham emphasized about liquidation value 🙂 . Also it could come into place as disclosures started increasing.
All thanks to the correction in 1929 and the subsequent disclosure rules of the Securities Act 1934.
Review of the Book
The Bad Parts
Dow Jones as an index went up from 40 to 900-1000 between 1932-1971 that is like 25 times in 40 years i.e 8% cagr. One of the best bull markets.
But if you take this at peak of 1929 this cagr drops to 2.5% !! ( Now thats some curve fitting )
Even if you take the starting point from 1922 say 10 years before the start of the mad bull market of 1922-1929 the CAGR drops to 5%.
What i find amazing is if you take any investment from bottom of the cycle everything will be amazing. If you have to justify long term investing the starting point should be Euphoric highs and then say Timing is not important - Time is.
Now we come to the end point of the calculation and the timing of the Book. The book released sometime in 1972 and what happened after that.
- Dow Jones hit 1000 for first time in 1972.
- In the next 2 years Dow fell by 30-35%.
- Dow Jones could not cross 1000 for next two attempts in 1976 and 1980.
- For next 10 years after the book the Dow Jones Return was zero 🙂
I dont know whether the book was a hit in 1972 but if somebody did start investing for 40 years he would have had a lot of pain for next 10 years. But 40 years later the book has now got reprinted as an Old Classic 🙂 !!!
As we say in markets History Repeats itself.
Remember this book written in 1999 - Dow Jones 36000 when Dow Jones went to 10000 🙂 - Again Dow Jones fell by 30% but took 5 years to reclaim it and its 15 years its still at 16000-17000.
Maybe 30 years down the line above book will become a rage amongst investors.
Some flashy numbers taken by the author
- 10000 dollar investment.
- In 1932 with no jobs and with annual average income of 1400-1600 $ and a new house cost of 6500 $ you would expect someone to put 1000 $ into the equity market forget a single stock would have been a crime 🙂 ( 10k dollars adjusted for US inflation today would be 136500$ ask someone to put that in a single stock today and you would know.)
- Was there enough liquidity in those stocks to buy. The median bid-ask difference was 5% in many cases.
- So many times it says this - " if you and i would have bought every one of those shares traded " - ( Now thats just too WOW a statement - You become Mr Market ).
- It keeps on talking about how Buying Right is most important but doesnt delve much on how to find the Right Stock.
- It uses all the words from patience, courage, vision, foresight numerous number of times and talks about how stocks were available at 1$ for 5-10-15-20 years and you could have made 100 by 1971, but barely does it ever use the word - " LUCK ". Most of the examples of 365 stocks would be "LUCK".
- John Maynard Keynes said - In the long run we are all dead. The conclusion of the book i think is - In the long run some stocks are always up 100x - Buy and Hold forever.
The Good Parts
- It has amazing quotes for investment rather some amazing classics which you would like to make notes on and have a mental orgasm over it.
- Egonomics is a must read chapter.
- Good history about stocks in us in 1930-1970 but cannot relate. Also the sentimental behaviour of market.
- One key takeaway was to compare bond returns to stock yields. Relative return and p-e of stocks to Index p-e.
- Very good idea about compounding, vision, courage and how things change over a period of time if you have patience.
- Understand the importance of earnings growth with p-e re-rating.
- How tax hits your returns if you trade in and out but India it does not matter with zero long term capital gains.
There is not a single line about selling a stock. It even says - Every sale is a confession of Error. ( tries to refute it in next few sentences but fails to.)
Basic premise as well as the Demise for the book is - In the long run some stocks are always up 100x - Buy and Hold forever.
P.S - Do note this is a personal view from a dumb and very opinionated chap . Given this book has been recommended by many smart investors across the world It is fair enough to have one dumbass not liking it.
As i write this there is an entirely new edition of a similar book -
100 Baggers: Stocks That Return 100-to-1 and How To Find Them