Mayer uses a simple but powerful decomposition to explain how stocks achieve extraordinary multiples. The return on any equity investment is a product of two forces: what the business earns (and how fast those earnings grow), and what investors are willing to pay per dollar of those earnings (the valuation multiple). A 100-bagger typically requires both engines firing together, and Mayer's research confirms this pattern across his database of historical examples.

Consider the arithmetic: a stock that grows earnings tenfold over a decade and simultaneously sees its P/E ratio expand from 10× to 30× has delivered a 30-fold return from the combination. Add another leg of earnings growth and the math cascades toward the 100× threshold. The key insight is that multiple expansion is not random — it follows narrative. As a previously obscure small company proves out its business model and attracts institutional attention, investors become willing to pay more for each dollar of current earnings because they are underwriting a longer growth runway.

The investment implication is that buying great businesses early — before the institutional consensus has formed, before the story is obvious — captures both engines. Buying after the narrative is universally accepted often means paying a high multiple for a business whose earnings growth is about to slow, leaving the investor exposed to the painful reverse: earnings growth and multiple compression working together on the downside.

Mayer's framework here is a useful corrective to purely fundamental analysis: the multiple matters as much as the business, especially at entry.

Keep reading.