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

Investing can sometimes feel like navigating a noisy, crowded room. We had the opportunity to sit down with Chris Mayer, the man behind 100 Baggers, to uncover the key drivers behind long-term shareholder value. He shares insights on one of his current holdings, the power of reinvestment, why patience might be your most valuable asset, and the most common mistakes investors make.

Hi Chris, we'd love to start by learning more about your journey. Could you start by briefly telling our readers a little about yourself and your background?

Sure. I run Woodlock House Family Capital, which is a long-only hedge fund with about $200 million in assets under management. We opened our doors in January 2019 with $25 million in seed money from the Bonner family. I run a concentrated portfolio, 11 names. We look to get to know our businesses well and keep for a long time.

But maybe I should back up a bit and say how I got here. I studied finance in college. I started in corporate banking in 1994 as a credit analyst. The bank had a program where they would pay for your MBA based on your grades. I don't remember the scale exactly, but if you got A's you got 100% reimbursed. Needless to say, I was a good student.

In a few years I became a corporate loan officer. It was a great place to begin, because you really study businesses from the ground up, getting into the weeds with, for example, field audits where you test accounts receivable and things like that. There is a laser focus on free cash flow and ability to repay your loan. You get to know management. You think about business values. It's good training for a future investor.

Anyway, I was good at that and enjoyed it, but had a passion for investing in equities and writing. I edited a newsletter at the bank, which I started and which we sent to our best customers. It included my thoughts on the markets and things like book reviews and even interviews.

Eventually, in 2004, I started my own newsletter focused on investing in the stock market. I would print out copies and mail them. My wife and I would stuff envelopes at the kitchen table. I think I had about 150 subscribers six months in. And then I made a deal with Agora in Baltimore to publish and market it.

So, I was able to take a nights-and-weekend hobby and turn it into a full-time gig. I had a model portfolio of recommended stocks that I tracked for subscribers. That was a lot of fun, writing that letter. I traveled all over the world – even to some out of the way places like Mongolia, Myanmar… all through Asia really, South America, the South Pacific. I would write to my subscribers about my adventures. I was like the Anthony Bourdain of finance, looking for cool ideas in odd places, meeting interesting characters and just trying to figure out how the world worked. It was great.

But there was this pull to manage money. Because I had a good track record, I had several offers to manage money but it was never the right fit. But in 2016, I had the chance to work with the Bonner family office. The Bonner family was my publisher and the majority owner of Agora. They are wonderful partners. So I did that and had good success in a short time, but eventually that led to starting Woodlock House with the Bonner family seed money. So here I am.

What first drew you into the world of investing, and how has your philosophy evolved over the years?

Well, I grew up in a financial family, you could say. My dad worked for GEICO for a long time and met Warren Buffett and I heard all the stories, such as when Buffett met with Lorimer Davidson on a Saturday morning and so on. And my mom was a banker.

We had a subscription to Fortune Magazine and I remember reading about Buffett there. And my dad always had business books around. I remember reading things like Ray Kroc's book on McDonald's and Barbarians at the Gate and Sam Walton's Made in America. I also remember the crash of '87 being something that drew my interest in this thing called the stock market where people seemed to make and lose fortunes. All seemed very exciting and I wanted to learn more.

So, naturally I started with Buffett, the most famous investor. And I learned he had a teacher, Ben Graham. That led to Security Analysis. I have a distinct memory of holding that fat book as a late teen and not understanding much of it at all, but thinking it was a magical book, a wizard’s book that showed the secrets of how to make a lot of money. I was determined to understand it.

As for how my views evolved, I started in that early Buffett / Ben Graham sort of way. And Marty Whitman was a big influence. And Peter Lynch. And Greenblatt's book, You Can Be a Stock Market Genius. And the usual greats. But over time, I evolved to become more like Munger, looking for quality that you own for a long time.

When I wrote 100 Baggers, doing that work was kind of an epiphany itself. I learned a lot doing that work. And I got to meet and spend time with Chuck Akre. I'd say the way I invest these days is most aligned with the way Chuck thinks about investing. He's had a big influence on me.

Outside of the financial world, what are some of your biggest passions or hobbies?

I like to read. I have a home library full of philosophical books. It's my happy place. But beyond that, I love to play golf. I live right across the street from a golf course. And there are six golf courses within 20 minutes of my house. I also like to cook. My wife and I experiment all the time with New York Times recipes. I like to go for hikes. I enjoy traveling.

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. It's easy to see this when you just look at many of the names and can readily identify the entrepreneur. Apple and Steve Jobs. Wal-Mart and Sam Walton. Charles Schwab and, well, Charles Schwab. The list goes on.

Which of these traits do you believe are most underappreciated by investors?

I think reinvestment is most underappreciated. Even investors who get the idea of investing in quality companies and owning them for a long time miss the reinvestment aspect, or don't fully appreciate how important it is over a long period of time. And so they own companies that are high quality in many respects but that pay out big dividends, for example.

There is a place for dividends, of course, but if you are focusing on 100 baggers, then a dividend is, in the words of Thomas Phelps, "an expensive luxury." It is a leak in your boat that slows the compounding process.

Chris Mayer next to one of his large bookcases, displaying his book 100 Baggers.

Chris Mayer next to one of his large bookcases, displaying his book 100 Baggers.

You discuss 'founder-led' companies in your book. Can you elaborate on why founder involvement is such a powerful predictor of high returns?

It is hard to quantify. We see the output – those examples of super successful companies led by a founder, but the input, the exact process that leads to that output, is a mix of anecdotal evidence.

Intuitively, an entrepreneur is someone who has a passion for the business, has vision and pushes it in a way a hired hand usually doesn't. Founders tend to think long-term and are opportunistic, whereas hired hands often fall for the quarterly earnings game and give guidance and stuff like that... Anecdotally, a founder-led company is more likely to not even have an earnings call. I think of Constellation Software. Or Berkshire, for that matter.

From my own experience, I also notice little things that founder led companies do. How they travel. Where they live. What their office space looks like. Are founder-led companies more cost-conscious? Does this add incrementally to their advantage? I can't prove it, but I suspect so.

Do you think it's harder to find 100 baggers in today's market, given the rise of information accessibility and trading technology?

Not really because there is a great deal of judgment involved. It's not a quantitative exercise. It has a quantitative element. But you have to think deeply about a company's competitive advantage and whether it is something that can go the distance – you need 20 to 25 years of high performance; that was the time frame for the bulk of the 100 baggers in the study, though of course some did it in less time and some took longer.

Second, it's not just about finding them. You have to hold on a long time, through ups and downs, through long stretches where the stock goes nowhere. And all the while you are assaulted with new ideas, people telling you to buy this, sell that, the drumbeat of economic data and other noise. The bigger challenge may not be finding a business that becomes a 100 bagger. The bigger challenge may be holding on to it.

How does your other book, How Do You Know?, differ from 100 Baggers? And if you had to pick just one takeaway from How Do You Know?, what would you say is the most important lesson or insight?

It's totally different, much more philosophical than focused on the nuts and bolts of investing. It's based on the ideas of Alfred Korzybski, one of my favorite thinkers, who created a discipline called general semantics. You can think of it as a mental model, a valuable aid to critical thinking. There hasn't been a book applying general semantics to investing since 1958. So in writing this book, I'm bringing back some needed arcana.

One takeaway? I dislike trying to compress such a rich set of ideas into a soundbite. But to play along, I'll say one big insight comes from an adage Korzybski popularized, which is "the map is not the territory."

How we use labels, for example, while handy, can blind us to what's really going on. When we call a stock a "small cap" – what are we really saying? What use is such a term?

So people think "small caps" have bigger opportunities to grow than "large caps." But in reality a company with a $600 million market that has saturated its market may have much less upside than a $20 billion market cap company with a gigantic global opportunity in front of it. So to "focus on small caps" is a needless self-defeating proposition that has nothing to do with the compounding we talked about earlier.

"Market caps" as a category are created to sell funds, but otherwise have no relevance to the art of investing itself. Neither do labels like "growth stock" or "value investing." There are so many useless terms floating around. But anyway, getting to know a bit of Korzybski’s work will help clean up your linguistic hygiene.

How much emphasis do you place on traditional financial metrics versus qualitative factors like culture and leadership?

I like to say the quantitative stuff is the baseline. It's where I start. I want to see those high returns on capital, for example. There are financial metrics that have to be there. But the qualitative stuff is more important, especially as a long-term owner of businesses. I don't care how good the numbers are if these things are missing.

When it comes to knowing when to sell, what are the red flags or criteria you follow to make those decisions confidently?

When to sell is a reversal of the process that got you to buy in the first place. So for me, high returns on capital and reinvestment are initially part of the thesis, when those become threatened, it is time to go.

Easy to say, hard in practice. Nobody is really a good seller. We all have great exits, of course. But if you're in this business long enough, especially if you are generally buying good businesses, you're going to look up what you sold some day and be astonished at how foolish you were. And those kinds of mistakes are invisible to most but the costs are huge.

As for red flags, I'd say a general guide would be if management strays from the playbook. If they tell you they won't ever issue stock to do an acquisition and then they do it, it's probably time to go. Keep an eye on competition. Loss of market share is a big red flag.

What qualities in a business are most predictive of exceptional long-term value creation?

It seems to me having a defendable competitive position is number one. Those high returns are no good if a competitor can come along and grind that down. There are many ingredients that go into understanding a competitive advantage, which go beyond what we can cover here. But there are lots of books and articles out there.

What do you think the most common mistakes are among investors?

Paying attention to things that don't matter. That's easily the biggest mistake. What doesn't matter? What the Fed might do. What the economy might do. What the latest guru says about the market's valuation. What interest rates might do. What's going to happen next quarter. Politics. The list is long. These things are unpredictable and not worth spending time on.

The other big mistake is weighing way too heavily things that are happening now. It's funny, I keep an investment journal. And I keep good notes on companies I'm invested in. I comment on the quarterly reports and such. And looking back on these notes is always enlightening. Because I can clearly see how so little of the details mattered. The concerns of the day dissolve into nothingness over a period of years. And yet they seemed so important at the time.

Every investment really has a handful of things that are really critical. Everything else is noise. The job of the investor is to find out what those key things are. And stay focused on those things.

Can you give us an example of a company you found an especially compelling investment opportunity, and what specific characteristics drew you to it?

One stock I bought recently is Computer Modelling Group, listed in Canada. There is a certain Constellation Software influence here; Mark Miller is chairman of the board. The largest shareholder is a Constellation board member. And the head of acquisitions is an ex-CSI guy. The CEO, Pramod Jain, gets it.

Early in 2024 they adopted CSI-style compensation, which rewards ROIC + growth and requires part of the bonus to purchase shares in the open market. I love all of this. And then you have a steady, high-return, cash-spinning, moaty software business at the core. They've got lots of room to deploy capital in a big market and grow.

One negative is the dividend. But I'd expect them to cut or do away with the dividend entirely at some point as they ramp up their M&A program. They've only done two so far. The stock sold off heavily after a soft quarter in November, which is a gift for the longer-term shareholders.

So, yeah, this one has the whole package – great incentives, great team, great balance sheet, high returns, lots of room to deploy capital – and now, because of the selloff, a very good valuation to boot. I even like the boring, non-promotional name. It's a sleep-well-at-night investment for me and I expect to own shares for a long time.

Reflecting on your own career and experiences, what would you consider your biggest investment mistake, and what did it teach you?

I don't know my biggest investment mistake. I guess, looking back on it, all that time I spent looking for cheap stocks and flipping them when they no longer looked cheap. I'd be much richer if instead of looking doing that, I invested in companies I could own for two decades.

I remember in the 2008 crisis getting excited about net-nets. I don't own any of them today. And, I didn't own them for very long, period. I'd have been better off if I just bought Mastercard and Visa and left them alone. Or Copart. Or Heico. Or Constellation Software. It's a long list, actually.

Anyway, what they taught, what they seared into my memory, is the power of leaving the stocks of good companies alone. And to do that, you need to tune out a lot of noise as I've mentioned.

For investors starting out today, what practical advice would you give to help them identify high-potential, long-term investments?

Study great businesses. Really, learn what makes them tick. Why have they been so successful? Then, ideally, you'd look for smaller, younger versions of those companies. Study what you're interested in. And happy hunting.

There is no easy way to do this. It's like I can just give you a checklist of five bullets and say "here you go, find companies that have these." There is more nuance to the whole thing. We've talked about a lot of the guardrails, the key things you want to look for.

Investing requires both mental discipline and emotional resilience. What habits or practices help you stay balanced and focused?

Number one is be careful what you put your attention on. Don't even let the noise in your field of vision if you can help it. Never watch financial coverage on TV. Forget about reading the daily financial news. Forget about the economic indicators – like the CPI or whatever.

Those things are distractions. And they will work on your mind, in ways you don't necessarily see or feel. All of these distractions will make it seem like something important is happening every day. When, most of the time, the opposite is true.

You have to cultivate that long-term mentality and to do that means screening out a lot of noise. Once you do that, it's easier to not get emotional. Social media is a double-edged sword. I've made some good contacts on X, but it's also full of people who don't know what they're talking about.

Keep your own counsel, do your own work – and have confidence in your own work – and you will also build conviction naturally, along with that mental discipline and emotional resilience.

If you were to write a follow-up to 100 Baggers today, what new insights or modifications would you add to the book?

I've said this before, but I'd modify the part where I tell people to look at companies with market caps of less than $1 billion. I'd say to focus on the engines of compounding, as we've talked about, and not worry so much if the market cap is $1 billion or $10 billion.

Second, I'd add a chapter on serial acquirers. I don't like the name, but it seems to have stuck. Serial acquirers grow mainly through acquisitions. And I think there is, still, a wide misperception that acquisitive companies are "bad." But it's proven a very good model. Constellation Software is one we mentioned. But there are others.

Finally, if you could recommend one book (besides your own!) or source of inspiration that has had a profound impact on your life, what would it be and why?

Well, as far as my investing life, I'd say 100 to 1 in the Stock Market by Thomas Phelps. Because that set me on the path to write 100 Baggers and led to a profound change in how I think about investing. Otherwise, it is hard to say because many books have had a big impact on me at different points in time, nudging me this way or that, but I don't think of all these books as particularly important today, if you know what I mean.

Still, if I had to name one, I'd say Alfred Korzybski's Science and Sanity, originally published in 1933. Because Korzybki's ideas changed how I view the world forever. There are not many books you can say that about. I wrote two books around his ideas! And today I serve as a trustee for the Institute of General Semantics, which he founded. There isn't a day that goes by where I don't use something that Korzybski taught.

Having said that, Science and Sanity is a difficult book. But there are other ways to get some exposure to general semantics. My own books are good entry points: How Do You Know? and Dear Fellow Time-Binder – both published by the Institute. And I don't get anything if you buy them, all the royalties go to the Institute. So it's not as self-interested a recommendation as it seems.