How To “Reverse Engineer” The Greatest Investments Ever
A colleague of mine in Baltimore has an unhealthy obsession with stock market history.
He’s that kind of guy. He loves digging through data, making connections, and testing out theories.
A while ago he got particularly obsessed with one idea: the greatest stock market investments ever. He wanted to know what kind of companies they were. Were they big? Small? In what industries? At what times did they do it? What kind of strategy did they use?
Did they all have something in common?
That last question is the one that matters most. He wanted to see whether there was a through-line from the great investments of the past to the great investments of tomorrow. In short, he wanted to find out where the next stock returning 100 to 1 was going to come from.
His research threw out some surprising conclusions. It turns out that spectacular stocks like this turn up every year, and they’re not concentrated in particular times. They’re to be found in lots of different industries. And there have been hundreds of them since his data series began, in 1932 (456 to be precise).
Here’s another one: the CEOs that take their companies to the top of the mountain tend to be outsiders… punks… iconoclasts. They don’t do things the same way others do.
Every CEO has basically got five options about how to allocate their company’s resources. They can invest in existing operations, buy other businesses, pay dividends, pay down debt, or buy back stock. The “punk” CEOs who returned £100 to £1 for investors chose options that many would’ve disagreed with or considered mad. But they did it anyway, because they knew better.
Of course my colleague wasn’t too surprised by some other conclusions. The greatest investments of all time are almost invariably found among small caps and penny shares. That’s self-evident, right? For a stock to grow 200 fold, it necessarily has to start out small.
He spent more than a year on this project, and now he’s come up with something a bit special. He’s basically “reverse engineered” the 456 investments in his study, and he’s figured out exactly how they differ from ordinary stocks.
On Wednesday, I’ll be in touch with the full contents of his research.