Thomas Phelps was a distinguished security analyst and author of the book ‘100 to 1 in the Stock Market’, which was published in 1972. In his book, he revealed the secrets and strategies to increasing your wealth one hundredfold through buy-and-hold investing¹.
Phelps’s stock selection process was based on the idea that investors should look for companies that have the potential to grow their earnings and dividends at a high rate for a long period of time, and hold them for at least 10 years or more. He called these companies **compounding machines**, because they could turn a small investment into a fortune over time¹².
Phelps identified several characteristics that compounding machines had in common, such as:
– They were small and relatively unknown, often ignored or overlooked by Wall Street analysts and institutional investors.
– They had a unique product or service that solved a problem better, cheaper or faster than the competition, and had a large and growing market.
– They had a strong, research-minded management team that was innovative, visionary and shareholder-friendly.
– They had low debt, high profit margins, consistent cash flow and high returns on capital¹³.
Phelps also advised investors to avoid some common pitfalls that could prevent them from achieving 100-to-1 returns, such as:
– Selling too soon for a small profit or a small loss, instead of letting the winners run and cutting the losers short.
– Chasing after hot tips, fads or popular stocks that were already overpriced and overhyped.
– Taking investment actions for non-investment reasons, such as taxes, commissions or emotions.
– Failing to do their own homework and relying on others’ opinions or recommendations¹².
Phelps’s stock selection process was simple but powerful. He showed that individual investors could beat the market by finding and holding compounding machines that could multiply their wealth many times over.
(1) 100 to 1 in the Stock Market – Google Books. https://books.google.com/books/about/100_to_1_in_the_Stock_Market.html?id=sj72rQEACAAJ.
(2) 100 to 1 in the Stock Market by Thomas Phelps • Novel Investor. https://novelinvestor.com/notes/100-to-1-in-the-stock-market-by-thomas-phelps/.
(3) 100 to 1 in the Stock Market: The Amazing Mr. Phelps. https://www.cabotwealth.com/daily/stock-market/100-to-1-in-the-stock-market.