As a student, you are not allowed to copy from others during your exam.

But as an investor? You can copy the ideas of the best investors in the world.

Let’s look at what superinvestors are buying today.

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Shameless Copycat

As an investor, you can be a shameless copycat.

You should try to get new ideas and do more of what works.

• Charlie Munger copied Benjamin Franklin

• Microsoft copied Netscape

• Facebook copied Snap and Tiktok.

• …

Mohnish Pabrai summarized it quite well:

Something very interesting

Do you know what’s really interesting?

Software businesses went on sale in the first quarter of 2026.

Why? The market is afraid of AI disruption.

Warren Buffett said that you should be greedy when others are fearful, and fearful when others are greedy.

That’s exactly what superinvestors are doing right now.

A lot of great investors see this as an amazing opportunity to buy compounders at a wild discount.

A perfect example? Constellation Software.

Mohnish Pabrai loves Constellation Software right now.

Here’s what he has to say about the company:

How Does Constellation Software Make Money?

Constellation Software is the best serial acquirer in the world.

The stock has consistently compounded at +30% per year.

Just 15 years after their IPO in 2006, Constellation had already joined the 100-bagger club. It’s an amazing business.

You can find the essentials here:

Why are superinvestors buying?

• Replacing Constellation’s products would be incredibly expensive and risky

• The cost of Constellation’s software is minimal compared to the operating costs of most businesses

• Constellation Software is currently facing its largest drawdown ever

In short: Constellation Software could be very interesting for long term investors today.

Now let’s dive into these two things:

• What are superinvestors selling?

• What are superinvestors buying?

What are superinvestors selling?

Quality is facing a tough time.

The market seems to be in a mania. A very dangerous to place to be in.

Just look at this tweet:

This can’t go on forever.

Considering selling quality stocks right now? You’ll probably do it at exactly the wrong time.

I think Quality is very well-positioned to outperform (dramatically) in the years ahead.

Main sells of superinvestors

Intuit (INTU)

How does Intuit make money?

Intuit sells subscriptions for its financial, accounting, and tax preparation software.

Think about TurboTax and QuickBooks.

What happened?

Intuit was trading at very high valuations.

They traded at 50x-70x earnings!

The company had very high switching costs, and was easily able to raise prices every single year.

But AI is getting better very fast. Things are changing quickly.

This is a problem for Intuit.

The company might win new customers more slowly than before. Or it might lose some of its power to charge high prices.

So what happened? The stock was already very expensive. On top of that, growth could slow down. That worried some big investors.

Two of them walked away completely.

Fundsmith and AKO Capital sold all their Intuit shares.

A third investor, Dev Kantesaria of Valley Forge, sold about 15% of his Intuit shares.

The S&P 500

Another interesting thing I noticed?

Prem Watsa runs a company called Fairfax Financial.

In his portfolio, he held an S&P 500 index fund. That’s a fund that follows the 500 biggest companies in America.

He started selling it in the third quarter of 2025 and completely exited in the first quarter of 2026.

He might think the Big Tech companies are overvalued right now.

What happened?

The S&P 500 is becoming more and more concentrated in the big tech companies:

These companies are spending billions on AI.

So what does that mean?

The S&P 500 used to be a wide investment in the whole American economy.

Lots of different companies, lots of different industries. But not anymore.

Today it’s more of a narrow bet on AI.
A few big tech names decide where it goes.

On top of that, the S&P 500 is very expensive right now.

And we’re not just guessing here…

We’re looking at Warren Buffett’s favorite way to measure the market… The Buffett indicator.

Today, the Buffett Indicator trades at 219%:

This leads us to another interesting key finding.

Superinvestors Disagree on AI

It looks like superinvestors are trying to figure out who will win and who will lose the AI race.

But they don't agree yet.

Let’s dive in.

Mircrosoft

How does Microsoft make money?

Microsoft sells cloud services, software, and hardware.

They also earn from ads on Bing, LinkedIn, and subscriptions like Microsoft 365 and Xbox Game Pass.

Who bought Microsoft?

Bill Ackman’s Pershing Square made Microsoft ($MSFT) a core holding.

He bought in at 21 times forward earnings.

He called the company “really cheap” after the stock dropped for a short time following its earnings report.

At the same time, Bill Ackman sold his Alphabet position:

Who sold Microsoft?

Chris Hohn’s TCI Fund Management did the exact opposite.

He cut his Microsoft position by more than 80% and bought Alphabet instead.

That makes his Alphabet position 3 times bigger than his Microsoft position.

Hohn seems to bet think the market is getting Google wrong.

He thinks people don’t see how big Google really is, how strong its data is, and how much it still rules search.

Another interesting seller of Microsoft stock?

The trust owned by Bill Gates, one of Microsoft’s founders.

He sold all his Microsoft stock in the first quarter of 2026.

Now let’s get into the most interesting part of this article.

Main buys of superinvestors

What are the 5 stocks superinvestors are heavily buying?

Read more

What’s going on in the markets? And what are our favorite stocks?

Let’s get a little bit wiser today.

May 2026

The S&P 500 rose +5.0% in May.

However, the start of June was more rough: -2.4%.

To give an example, the Nasdaq was down 4.4% this week while some ‘boring quality stocks’ did really well:

• Brown & Brown: +4.8%

• Ameriprise Financial: +2.2%

• Medpace: +2.2%

I expect more and more moves like this to happen going forward.

Investors are ‘Fearful’ today according to the Fear & Greed Index:

Best & Worst Performers

This overview shows you the best and worst performers in our investable universe.

Worst performers

The cheaper we can buy great companies, the better.

Here are the worst performers of the past month:

Best performers

These stocks did well over the past month:

💧 Spotlight: Badger Meter, Inc. ($BMI)

How Does The Company Make Money?

Badger Meter provides the technology to measure and control whatever moves through a pipe.

They’ve managed to transform from a simple mechanical meter manufacturer into a high-tech water management solutions provider.

As a result, they are now a clear market leader:

• Over 90% revenue share in the U.S. market

• The market leader in smart water systems for cities

• One complete system: their own smart meters plus their ORION and BEACON software, all working together

Why does it deserve to be in the spotlight?

We can’t talk about Badger Meter without talking about its durability.

The business is 120 (!) years old.

Since its IPO in 1971, the stock has compounded at 12.2% every year.

Its dominant market position comes from 3 things:

1. Vertical Integration: They make their own meters, sensors, and software. Because they control every piece, they can fix problems fast and bring out new ideas quicker.

2. High Switching Costs: Water companies sign long contracts. Once Badger Meter’s systems are installed, switching to someone else costs a lot of money and is a huge hassle.

3. Recurring Revenue Mix: Money keeps coming in every year. They earn steady, easy-to-predict cash from software subscriptions, monitoring services, and water-company relationships that last for decades.

The track record of Badger Meter’s capital allocation is phenomenal:

• Gross Margin: 41.4% (> 40%? ✅)

• ROIC: 25.8% (> 15%? ✅)

• Free Cash Flow Conversion: Consistently over 125% of Net Income in the past 5 years (> 80%? ✅)

The global smart water market is set to hit $37.4 billion by 2031, growing more than 12% per year.

A large acquisition

Badger Meter bought SmartCover Systems in 2025.

This was their biggest acquisition ever.
It significantly grew its software segment.

SmartCover sells hardware plus software.

It lets you watch wastewater and stormwater systems in real time.

Why this deal matters:

• Expanded Moat: It pushes Badger Meter deeper into the high-growth wastewater monitoring segment.

• Recurring Revenue: It heavily expands their higher-margin software and recurring revenue base.

• Market Leadership: It cements them as the go-to smart water platform for municipalities.

They’re continuing to add to this portfolio with the recent acquisition of UDlive in the UK.

You might think that a company that manufactures meters for utility companies would be a capital intensive business.

But that’s not the case for Badger Meter.

They carry no debt and their CAPEX is consistently below 2% of sales.

They don’t need much money to run the business.

This means they can pour their huge free cash flows into deals like SmartCover and keep growing.

We love businesses that:

• Sell must-have products

• Are hard to walk away from

• And have strong management at the top.

But Badger Meter is going through some macro troubles lately.

They saw revenue and EPS drop in the most recent quarter:

Management blamed it mostly on two things:

1. Customers working through extra stock they'd built up

2. Cities holding off on spending for a while.

If these issues are temporary, Badger Meter could be an interesting stock for long-term investors.

Best Buys June 2026

Let’s dive into our five favorite buys for the month.

Please note that the companies in Our Portfolio are not mentioned here.

We love all companies in Our Portfolio right now.

5. Stryker ($SYK)

How does the company make money?

Stryker manufacturers and sells surgical equipment, neurovascular products, and orthopedic implants (like artificial hips and knees) to hospitals worldwide.

Why Stryker is a Best Buy?

The aging global population provides a massive tailwind for Stryker:

Its Mako Robotic-Arm Assisted Surgery system is another really interesting part of the business.:

It operates on a brilliant razor-and-blade model:

• High Switching Costs: Once a hospital invests over a million dollars in a Mako robot and trains its surgeons to use it, they rarely switch to a competitor.

• Recurring Cash Flow: Stryker doesn’t just make money selling the robot, they make recurring revenue on the software, service contracts, and the specialized consumables required for every single surgery.

Stryker is a proven compounding machine that grows both organically and through acquisitions.

4. Fair Isaac Corporation ($FICO)

How does FICO make money?

FICO is most famous for licensing its proprietary credit scoring algorithm to major credit bureaus (Equifax, Experian, and TransUnion).

They also have a B2B software segment that helps global banks make complex lending and fraud decisions.

Why FICO is a Best Buy?

Fair Isaac is down more than 30% this year.

Why?

A U.S. government housing agency (the FHFA) is now allowing a rival product, VantageScore 4.0, to be used for approving mortgages.

The market is very fearful that this will have a big impact on FICO’s business.

I don’t think that will be the case.

• More data is always better: Even if lenders start using VantageScore, they’ll still check the FICO score too to make sure they get it right.

• Switching Costs: Bank rules and their own risk systems are built around FICO scores. Changing that means years of rebuilding everything from the ground up

• Recurring Revenue: The B2B software platform generates recurring revenue with high retention rates.

FICO scores are still the absolute standard when it comes to measuring consumer credit risk.

The current drawdown in stock price is a chance to buy FICO near the lowest valuation we’ve seen in the past decade.

Now let’s dive in the top 3.

Read more

The goal?

Generate the most returns while taking risks you feel comfortable with.

Today it’s time to make a change in Our Portfolio.

We will sell one company and use the proceeds to buy more of two companies we currently own.

I should apologize

Every time I sell a stock, I should apologize.

You are an invaluable reader and there is only one reason why we decide to sell a stock…

… When I notice I made a mistake.

As Charlie Munger said:

The only valid reason to sell a quality stock?
One of the most wonderful companies in the world?

When you notice you were wrong.

The investment thesis is no longer intact and the company is losing (some of) its moat.

Today it’s time to sell a stock in Our Portfolio as I think there are better opportunities elsewhere.

And that’s why I want to apologize to you.

I made a mistake here and I’m taking full responsibility for it.

Unfortunately, making mistakes is part of the game.

We should always keep the rule of three from François Rochon in mind:

• One year out of three, the stock market will go down at least 10%

• One stock out of three that we buy will be a disappointment

• One year out of three, we will underperform the index

As Peter Lynch said:

However, this doesn’t mean I don’t feel bad about this.

I feel personally responsible.

That’s why I will try to share the key learnings with you.

Here’s what we’ll do:

• We are selling one company

• We are using the proceeds to add to 2 companies with more upside potential

Let’s dive into the company names.

Read more

The stock has risen by +4,800% (!) since 2006.

But what if I told you there’s a smaller, cheaper version you’ve never heard of?

Meet Perimeter Solutions.

Can Perimeter become as successful as TransDigm? Let’s find out.

Read more

As you know, I always start every article calling you a Partner.

Why? Because we actually are. We are in this together.

We already wrote this in the Owner’s Manual back in 2023.

As a reminder, I have all my investable assets invested in the companies I write about.

Your success is my success and the other way around.

It’s the only right way.

As Charlie Munger said:

The reason I’m writing this article today is this email I received:

To be honest, this email truly touched me.
It meant a lot to me.

Sometimes it’s easy to forget that we are all human beings and like to be appreciated by other people.

All my dedication, passion and effort goes into Compounding Quality.

This truly is my life’s work.

I’m incredibly grateful that I am able to make a living from my passion.

And that’s thanks to you, invaluable reader.

It’s also why I appreciate everyone in the Community so much:

The goal?

Reach financial independence and help each other along our journey.

Because as Charlie Munger said:

At Compounding Quality, we use Quality Investing to make our investment decisions.

There are multiple roads that lead to heaven.

You should pick the investment style that suits you best.

What is important?

1. Pick an investment strategy that suits you

2. Pick an investment strategy that has proven to outperform the market

Quality investing fits both criteria:

The same is true when your banker recommends you a certain investment product.

You should always ask him or her two questions:

1. Are you invested in this product yourself?

2. Does this investment product have a great track record?

Only move forward when the answer is ‘yes’ on both questions.

Spoiler alert: not too many bankers will pass both criteria.

And that’s exactly why Compounding Quality was born.

To genuinely do the right thing.
To help you, an invaluable Partner.

I can’t feel more grateful to write and analyze for you.

Today, Compounding Quality has well over 1 million readers across all channels.

Let’s give you an even better insight about Compounding Quality.

My Daily Routine

A lot of Partners ask me about my daily routine.

Let me confess something to you: I’m maniacally focused on productivity.

Books like Atomic Habits, Eat That Frog, and Deep Work all say the same thing:

I stand by this statement.

That’s why:

1. I (almost) never do meetings before 3 PM my time (consider yourself special if I do)

2. I structure every single day the same way

Here’s what a usual day looks like:

That’s a 13.5 hour working day.

Every. Single. Day.

This intense working schedule is not for everyone.

I work 7 days out of 7 (less hours during the weekend, however).

The only way you can do this is, is when this truly is your passion.

Compounding Quality is my life’s work.

You’re an invaluable reader.
It’s my moral duty towards you.
I need to keep learning and provide you with as much value as humanly possible.

This passion also comes at a cost: it’s a very intense lifestyle.

Not everyone in my direct environment understands or supports this kind of way to live your life.

What’s important to highlight? The most important thing at the end of your life is not how much you worked.

It’s all about love.

How much love you gave and received.

I loved this tweet from Kevin | Large Fam Dad:

How my thinking has evolved

As an investor and human being, you need to be a learning machine.

As Charlie Munger said:

It would be very naive stating that the (investment) thoughts you have today will be the same 10 years from now.

Let’s hope we make a lot of progress over the next 10 years.

Why? Because to stand still is to go backwards.

We have made poor investment decisions in the past.

Let me be clear… I feel personally responsible for them.

There is only one person to blame: me.

I want to personally apologize for that.

Here are a few painful examples:

• Selling Ulta Beauty in March 2025. The stock is up +50% since then

• Buying Judges Scientific in April 2025. The entire market for scientific instruments (especially Judges) is struggling right now

• Buying Novo Nordisk because I thought the stock was cheap. Up until now, the stock only became cheaper

And these are just a few examples.

I think we should always keep the rule of three by François Rochon in mind:

• One year out of three, the stock market will go down at least 10%

• One stock out of three that we buy will be a disappointment

• One year out of three, we will underperform the index

It’s fair to say that I will keep making investment mistakes going forward.

The most important thing is to minimize them as much as possible.

The things that I can guarantee are the following:

1. I will always openly communicate about my mistakes in an honest way

2. I will do everything I can do to minimize mistakes as much as possible

3. Our incentives are aligned. I have all my money in these companies

What comes next for Compounding Quality

Going forward, we’ll keep focusing on executing our strategy relentlessly.

The strategy already outlined in the Owner’s Manual in 2023.

As a reminder…

Compounding Quality is not for you if you want to:

❌ Get rich quick
❌ Blindly follow someone’s else’s advice
❌ Outperform the market every single year

You are in the right place if you want to:

✅ Learn and become a better investor
✅ Be assisted alongside your investment journey
✅ Outperform the market in the long term

The essence of the portfolio is very simple:

1. Buy wonderful companies

2. Led by outstanding managers

3. At fair valuation levels

We want to invest in the best companies in the world.

The portfolio will consist of 3 buckets, as you can see here:

1. Owner-operator stocks

• Owner-operator stocks are companies that are still run by their founder

• Academic studies found that family companies and founder-led companies outperform the S&P500 with 3.7% per year and 3.9% per year respectively

2. Monopolies and oligopolies

• Only one or a few companies dominate the entire industry

• Monopolies and oligopolies are usually great investments because they are able to operate at attractive conditions due to the lack of competition

3. Cannibal stocks

• Quality stocks which heavily buy back their own shares

• When outstanding shares decrease, your stake in the company increases

Portfolio characteristics

Here’s what Our Portfolio looks like:

✅ The portfolio will invest worldwide (developed countries only)
✅ We’ll own 15-20 stocks
✅ The portfolio is aiming to invest in the best companies in the world
✅ We won’t trade a lot. Activity and costs harm our results
✅ We won’t try to time the market (I’m way too dumb for that)
✅ The characteristics of companies in the portfolio:

• Sustainable competitive advantage

• Great management with skin in the game

• Healthy balance sheet

• Low capital intensity

• Good capital allocation

• High profitability

• Plenty of reinvestment opportunities

• Trading at fair valuation levels

Going forward we will use the strategies and characteristics mentioned above.

Why?

Because they have proven to be able to outperform the market:

Conclusion

That’s it for today.

Here’s what you should remember:

• We’re partners on this journey. Your success is my success, and that’s why all my investable assets are in the companies I write about.

• Compounding Quality is my life’s work. You deserve nothing less than my full commitment to keep learning and delivering value.

• I’ll own my mistakes openly. I take full responsibility, and I’ll always communicate honestly when I get things wrong.

• The strategy stays the same. We want to buy wonderful companies at a fair price.

• The long term is the only thing that matters. We’re not chasing quick wins or yearly outperformance. We’re here to learn, compound, and reach financial independence together.

Talk to you soon!

Everything in life compounds
Team Compounding Quality
PS You are not a Partner of Compounding Quality yet? Discover everything you need to know here.

Book

• Order your copy of The Art of Quality Investing here

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Quality, you agree with our disclaimer. You can read the full disclaimer here.

What’s going on with our companies?
And which companies are the most attractive right now?

Let’s dive in right away.

Stocks? Or Companies?

Warren Buffett is the best investor in the world.

In this interview, he said that he tried to pick stocks when he was 11 years old:

• He paid attention to the price

• Read books on technical analysis

• He thought the most important thing was to be able to predict what the price would do

Then he read Ben Graham’s book ‘The Intelligent Investor’.

From that point on, he never bought another stock.

It sounds crazy.

Warren Buffett is the best investor in the world.

He is known for buying stocks like Apple, Coca-Cola, and American Express.

But since he read The Intelligent Investor…

He stopped buying stocks and started buying businesses.

Some of these companies, like Apple, Coca-Cola, and American Express, … just happened to be traded on the stock market.

This is an important mindset shift.

In the short term, there are a lot of random things that will drive the price of a stock.

Things like:

• Changes in interest rates

• Sentiment

• Analyst ratings

• Headlines

• …

But in the long run, the underlying performance of the business will drive the stock price.

Just listen to Peter Lynch:

The important lesson?

Over short periods of time, a stock's price can jump up or drop down because of things that aren't really about the company at all.

But given enough time, a strong business will lead to a strong stock.

In the long term, stock prices always follow the evolution of the intrinsic value:

Let’s dive in and see how our businesses are performing.

Our Portfolio

Fundamentally, our businesses are doing great.

Our companies are healthier than the ones in the S&P 500.

And this while they are substantially cheaper than the index.

As you can see we own better companies that are 23% (!) cheaper than the S&P 500:

The intrinsic value of our companies has grown by nearly 20% (!) per year.

Almost every company we own remains undervalued right now.

Right now, the market seems to care mostly about stock prices and the short term.

Let’s dive into the numbers for a second.

Our Portfolio in 2025

• Intrinsic value: +8.6%

• Stock price: -6.6%

As a result, Our Portfolio became 15.2% cheaper.

Our Portfolio in 2026

• Intrinsic value: +8.3% (expectations)

• Stock price: -17.2%

As a result, Our Portfolio became 25.5% cheaper.

Our Portfolio since the beginning of 2026

If you combine 2025 and 2026, Our Portfolio became 40.7% cheaper (!)

Over the same period, the valuation of the S&P 500 increased by 5%.

This means that since 2025, Our Portfolio’s relative valuation declined by almost 50% compared to the index.

That’s just ridiculous.

While the market will remain irrational in the short term, it will be a weighing machine in the long term.

I truly think now is the time to swing heavily.
The odds are in our favor.

I wrote an extensive summary about this.

Partners of Compounding Quality can read it here:

Extensive market update

Just let me make it clear: today is a great day to buy quality stocks.

I feel very confident that Our Companies will be fine.

Even while our performance is struggling right now.

Why?

Because we own companies with durable competitive advantages.

The expected return of Our Portfolio has never been higher than today.

Just think about it for a second…

1. Our companies are fundamentally way healthier than the index

2. Our companies are cheaper than the index

The current Forward P/E for Our Portfolio equals 17.1x.

This means the earnings yield is 5.8% (100/17.1x).

Terry Smith says there is an easy rule of thumb to calculate your expected return:

An expected yearly return of 17.8% would be amazing.

It’s the highest it has ever been for Our Portfolio.

This would mean you double your money every 4 years.

If you invest $10.000, the evolution would look as follows:

There are three companies in Our Portfolio that I specifically want to focus in on today.

The ones that could be an absolute steal today.

Read more

Today, you will receive a full investment case of 114 (!) pages about Fair Isaac Corporation

This is a wonderful company that definitely deserves your attention.

Compound with René

This investment case was made by Compound with René.

He was so kind to share the investment case with us.

You can check out his work here:

Compound with René

Fair Isaac Corporation - General Information

👔 Company name: Fair Isaac Corporation
✍️ ISIN: US3032501047
🔎 Ticker: FICO
📚 Type: Oligopoly
📈 Stock Price: $1,230.0
💵 Market cap: $28.5 billion
📊 Average daily volume: $457.9 million

This is a very extensive report.

In case you don’t have time to read it all right now, let’s give you the highlights first.

Three main takeaways

Here are the 3 most important takeaways:

1. Industry Standard Scores

FICO scores are used in 90% of U.S. lending decisions and over 95% of all mortgage-backed securities.

2. Strong Margins

FICO has strong structural advantages that give them the highest margins in the industry.

3. FICO is a Cannibal Stock

Because FICO is so profitable, they return quite some capital to shareholders through buybacks.

Conclusion investment case

René wrote a 114-page deep dive about FICO. Let’s summarize it for you.

FICO is one of the best compounding machines in history.

They operate a simple, capital-light business.

The company licenses its credit scoring technology to lenders and credit bureaus.

Every time a mortgage, auto loan, or credit card application is processed, FICO earns a small fee.

This makes FICO a tollbooth on the U.S. financial system.

The business benefits from:

• High switching costs

• Institutional inertia

• Decades of trust

FICO scores are deeply embedded in underwriting systems and the U.S. financial system.

The company is also very profitable.

The company has strong margins, high returns on capital, and has reduced its share count by 30% over the past decade.

While the opportunities are attractive, there are also concerns.

• Competition from VantageScore

• Regulatory pressure

• Advances in AI could disrupt their business model

Management has responded through FICO 10T, direct licensing initiatives, and investments in its cloud platform.

Onepager

Here are the basics of Fair Isaac Corporation (click on the picture to expand):

Quality Score

Every company gets a Quality Score based on 15 metrics.

Finally, the company gets a ‘Total Quality Score’ which is calculated by taking the sum of the score of all 15 metrics and dividing it by 15.

As you can see in the table below Fair Isaac Corporation gets a Total Quality Score of 7.8/10.

Full Investment Case

You can download the full investment case here:

Investment case Fair Isaac Corporation

Are we buying?

So are we buying FICO? Is it worth a spot in Our Portfolio?

Here’s the short answer…

Read more

The Berkshire Hathaway weekend was amazing.

It was once again an amazing experience.

The track record of Warren Buffett is truly remarkable.

You could take away 99% of the return of Berkshire Hathaway…

And you would still have outperformed the S&P 500.

$10.000 invested in 1962:

• S&P 500: $6 million

• Berkshire Hathaway: $3.8 billion

That’s the magic of compounding put to work.

We as humans are not wired to truly understand the power of exponential growth.

If you do, it will pay you tremendously.

During the Berkshire AGM, I learned a lot of new things which I’d like to share with you.

The intense schedule looked as follows:

Let’s dive into the three main lessons I took away.

1. Berkshire Hathaway will outperform

Many people have asked whether Berkshire Hathaway will be able to outperform the market in the years ahead.

The short answer?

Yes they will.

While the outperformance will be lower than the decades before due to the law of large numbers…

It’s very logical that Berkshire will continue to outperform.

The secret of sauce of Berkshire Hathaway is its float.

Berkshire Hathaway uses its float to invest in bonds and stocks.

You are not exactly sure what ‘float’ means?

Let me give you an example.

Just imagine you sign an insurance policy for your car today for $1.500 per year.

Under normal circumstances, you will not have a car accident today.

The average driver has a car accident once every 17-18 years.
The average damage per car accident equals $8,000-$10,000.

This means Berkshire Hathaway will receive $1.500 per year from you, but on average they will only pay out $8,000-$10,000 once every 17-18 years.

Until the car accident takes place, Berkshire Hathaway can invest these premiums in stocks and bonds.

That’s the float and it’s exactly what makes Berkshire so powerful.

Here’s the evolution of Berkshire’s float:

Just think about it for a second…

If you do well as an insurance company and you are profitable…

You receive the float for free.

It’s free money that is not yours you can use to invest.

This accelerates the investment profits from companies like Berkshire.

It also means the following:

If Berkshire Hathaway would use it’s operating profit and float to just copy the S&P 500, by definition it will outperform the index because it’s using ‘free money’ to invest in the index.

That’s exactly why Berkshire will keep outperforming in the years ahead.

2. This is ridiculous

Berkshire Hathaway has underperformed the index by 40% since it was announced that Greg Abel would become its CEO.

This has nothing to do with Greg Abel.

It has everything to do with Mr. Market who is a Manic-Depressive.

The last time Berkshire underperformed this much? 1999.

In the years thereafter, Berkshire massively outperformed the market.

We start seeing more and more weird signals in the market.

Take this one:

Or this one:

It shows you we are in very strange times.

Let me give you one extra example to make my point.

Here’s what things look like for Our Portfolio.

Our Portfolio in 2025

• Intrinsic value: +8.6%

• Stock price: -6.6%

As a result, Our Portfolio became 15.2% cheaper.

Our Portfolio in 2026

• Intrinsic value: +8.3% (expectations)

• Stock price: -17.2%

As a result, Our Portfolio became 25.5% cheaper.

Our Portfolio since the beginning of 2026

If you combine 2025 and 2026, Our Portfolio became 40.7% cheaper (!)

Over the same period, the valuation of the S&P 500 increased by 5%.

This means that since 2025, Our Portfolio’s relative valuation declined by almost 50% compared to the index.

That’s just ridiculous.

Just look what the fundamentals look like:

While the market will remain irrational in the short term, it will be a weighing machine in the long term.

I wrote an extensive summary about this.

Partners of Compounding Quality can read it here:

Extensive market update

3. Buy Berkshire instead of the index

Passive investing is very popular.

But today, I think it’s a way safer bet to buy Berkshire Hathaway instead of the index.

There are a few reasons for this:

1. Berkshire is better diversified (they have no large exposure to AI such as the S&P 500)

2. They have a huge cash pile (one third of the portfolio = cash)

3. They can use their float to invest

4. Berkshire is one of the best capital allocators in the world

5. The valuation is way cheaper than the one of the S&P 500

Berkshire Hathaway is a structural winner that will keep winning if you ask me.

If you invested $10.000 in 1962, here’s what you would have:

• S&P 500: $6 million

• Berkshire Hathaway: $3.8 billion

This means you could takeaway 99% of the returns of Berkshire Hathaway and you would still have outperformed the market.

That’s ridiculous.

It’s exactly why I keep going back to the Berkshire AGM year after year.

It’s like a yearly pilgrimage for me.

More resources

Finally, let’s end this article with some more resources.

💼 Investment case: The Next Berkshire Hathaway
🗣️ Investment case 2: The Company I pitched in Omaha
📄 Exclusive Berkshire Weekend PDF + Extensive Market Update

You can find them here:

Read more

It’s time to add an amazing company to Our Portfolio today.

Investors can expect a return well above 15% according to my calculations.

📈 Grows by >15% per year
🏆 One of the strongest management teams in history
💰 Trades at a 28% discount to its intrinsic value
🔄 Actively buying back its own shares (management believes the stock is too cheap)

Why we’re buying

Our Next Buy is an investment firm focused on mid-market private equity and infrastructure.

Since the current CEO took over in 2012, the NAV evolved from 279 pence to 3,030 pence.

An increase of more than 1000% (!).

This growth is mainly driven by its non-food retail chain.

This chain has grown its sales from €718 million to €16,000 million since 2011.

An amazing yearly growth rate of 25% (!).

But on the same time… the stock is down 30.0% since the beginning of the year.

This provides amazing opportunities if you ask me.

Over the past 20 years, the company has never traded at such a large discount as today.

Let’s find out which company I’m buying on Monday…

Read more

Arista Networks helps power the infrastructure that makes all of this possible.

Let’s dive into this rapidly growing high-quality company with exposure to AI.

Arista Networks - General Information

👔 Company name: Arista Networks
✍️ ISIN: US0404132054
🔎 Ticker: ANET
📚 Type: Owner-Operator Stock
📈 Stock Price: $145.9
💵 Market cap: $179.9 billion
📊 Average daily volume: $1.2 billion

Onepager

Here’s a onepager with the essentials of Arista Networks:

15-Step Approach

Now let’s use our 15-step approach to analyze the company.

At the end of this article, we’ll give Arista Networks a score on each of these 15 metrics. This results in a Total Quality Score.

1. Do I understand the business model?

AI and the cloud are everywhere.

They shape our entire digital world.

And guess what? Arista Networks plays a key role in making it all happen.

Think of Arista as a pick-and-shovel business in the booming AI industry.

During the gold rush, the people who got rich weren’t the gold diggers... but the ones selling the shovels.

That’s exactly what Arista does. They deliver the technology that connects computers and servers.

Their advanced networking solutions move data at lightning speed. It’s the backbone every AI system and cloud network needs to run.

Who buys from Arista? The biggest names you know.

Microsoft, Meta, Google, Oracle,…

Arista makes money in two ways:

• Selling Products (84.1% of sales): Most of the money comes from selling hardware like switches and routers. They also add powerful software called EOS and CloudVision.

• Selling Services (15.9% of sales): Arista offers maintenance contracts and premium support to companies that depend on their gear every single day.

2. Is management capable?

Jayshree V. Ullal has led Arista Networks as CEO since 2008, playing a major role in building the company into a leader in cloud networking.

Before joining Arista, she held senior executive positions at Cisco.

Under her leadership, Arista went public in 2014 and has grown into one of the most respected networking companies in the industry.

Ullal is also one of the most prominent women in technology. She owns 2.2% of the company (worth $4.8 billion).

All insiders together own 17.1% of Arista.

Co-founder Andreas Bechtolsheim is the largest shareholder with an estimated 14.6% stake.

3. Does the company have a sustainable competitive advantage?

Arista Networks has a sustainable competitive advantage based on switching costs, efficient scale, and intangible assets.

Cisco is Arista’s main competitor.

Arista outperforms Cisco with simpler, more reliable software that make updates and automation easier.

Once a customer starts using Arista’s products, they almost never switch.

Although Arista and Nvidia collaborate closely, they’re also becoming competitors.

Arista connects Nvidia GPUs via Ethernet, while Nvidia promotes its own expensive InfiniBand. As AI grows, Arista’s affordable solution becomes more attractive.

Today, Arista is smaller than Cisco and Nvidia but rapidly gaining market share thanks to its scalable, cloud-focused solutions.

Companies with a sustainable competitive advantage are often characterized by high Gross Margins and a high ROIC.

This is certainly the case for Arista Networks:

• Gross Margin: 63.5% (Gross Margin > 40% ✅)

• ROIC: 41.0% (ROIC > 15% ✅)

4. Is the company active in an attractive end market?

Yes, Arista Networks operates in a growing market driven by AI infrastructure, cloud computing, and the rising demand for high-performance networking.

Today, nearly 60% of the world’s business data is stored in the cloud, and that percentage continues to increase.

At the same time, major customers such as Microsoft, Meta Platforms, and Google are investing billions into AI infrastructure.

This creates a strong tailwind for Arista’s products and services.

Management estimates Arista’s Total Addressable Market (TAM) could reach $105 billion by 2029, highlighting the company’s significant long-term growth potential.

Arista’s opportunity is mainly divided into three segments:

• Core (Data Center & Cloud Networks): The company’s main business, providing networking solutions for hyperscalers, cloud providers, and large-scale data centers

• Cognitive Adjacency (Campus & Routing): Arista helps large enterprises connect and manage internal systems, offices, and networks more efficiently

• Cognitive Network (Software & Services): Arista’s fastest-growing segment, focused on software and cloud-based tools that automate, optimize, and secure networks using AI-driven capabilities

5. What are the main risks for the company?

No matter how attractive Arista Networks may seem, it is not without risks.

In my view, these are the biggest risks:

• Customer concentration: 35% of the revenue comes from two companies, Microsoft and Meta, making Arista vulnerable to changes in their spending

• Competitive and technological disruption: Although Arista is gaining market share, innovations and cheaper alternatives could threaten its position

• Long lead times: Arista holds extra inventory due to long lead times, but if demand falls, excess inventory can be costly

6. Does the company have a healthy balance sheet?

We look at three ratios to determine the healthiness of the balance sheet:

• Interest Coverage: Arista Networks has no Interest Coverage Ratio because it has almost no debt to repay (Interest Coverage > 15x ✅)

• Net debt/FCF: Net Cash Position (Net debt/FCF < 4x ✅)

• Goodwill/Assets: 1.9% (Goodwill to assets? < 20% ✅)

Arista has a very strong financial position.

7. Does the company need a lot of capital to operate?

The less capital a business needs to operate, the better.

Here’s what things look like for Arista Networks:

• CAPEX/Revenue: 1.1% (CAPEX/Revenue < 5%? ✅)

• CAPEX/Operating Cash Flow: 2.0% (CAPEX/Operating Cash Flow? < 25% ✅)

As Arista spends little on factories or equipment, its CAPEX is very low.

R&D spending is a better indicator of how capital-intensive the business truly is.

• R&D/Revenue: 13.5% (R&D/Revenue = 10%-20%? ✅)

• R&D/Operating Cash Flow: 24.2% (R&D/Operating Cash Flow = 25%-50%? ✅)

Arista is a capital-light company that grows through innovation.

8. Is the company a great capital allocator?

Capital allocation is the most important task of management.

Look for companies that put the money of shareholders to work at an attractive rate of return.

Arista Networks:

• The 5Y avg. ROE (Return On Equity): 28.8% (ROE > 20%? ✅)

• The 5Y avg. ROIC (Return On Invested Capital): 49.1%, (ROIC > 15%? ✅ )

These numbers look very attractive.

9. How profitable is the company?

The higher the profitability of the business, the better.

Arista Networks:

• Gross Margin: 63.5% (Gross Margin > 40%? ✅)

• Net Profit Margin: 38.3% (Net Profit Margin > 10%? ✅)

• FCF/Net Income: 142.9% (FCF/Net income > 80%? ✅)

10. Does the company use a lot of Stock-Based Compensation?

Stocks-based compensation is a cost for shareholders and should be treated accordingly.

Preferably, we want SBCs as a % of Net Income to be lower than 10%.

• SBCs as a % of Net Income: 12.6% (SBCs/Net income < 10%? ❌)

• Avg. SBC as a % of Net Income past 5 years: 16.1% (SBCs/Net income < 10%? ❌)

Arista Networks uses quite some Stock-Based Compensation.

This is a red flag.

We will take this into account in our valuation section later.

11. Did the company grow at attractive rates in the past?

We look for companies that managed to grow their revenue and EPS by at least 5% and 7% per year respectively.

Arista Networks:

• Revenue growth past 5 years (CAGR): 26.9% (Revenue growth > 5%? ✅)

• Revenue growth past 10 years (CAGR): 24.0% (Revenue growth > 5%? ✅)

• EPS growth past 5 years (CAGR): 34.6% (EPS growth > 7%? ✅)

• EPS growth past 10 years (CAGR): 34.1% (EPS growth > 7%? ✅)

Arista Networks has grown at exceptional rates in the past, especially since its FCF growth has also been remarkable.

• FCF-growth past 5 years (CAGR): 46.4% (FCF growth > 7%? ✅)

• FCF-growth past 10 years (CAGR): 46.7% (FCF growth > 7%? ✅)

12. Does the future look bright?

We want to invest in companies with attractive growth.

Let’s look at what the estimates are for Arista Networks:

• Exp. Revenue growth next 2 years (CAGR): 25.9% (Revenue growth > 5%? ✅)

• Exp. EPS growth next 2 years (CAGR): 20.7% (EPS growth > 7%? ✅)

• Long-term growth estimate EPS (CAGR): 18.5% (EPS growth > 7%? ✅)

This outlook looks very attractive.

But remember that making long-term predictions is very difficult, and analysts are often too optimistic.

13. Does the company trade at a fair valuation level?

We always use three methods to look at the valuation of a company:

• A comparison of the Forward PE multiple with its historical average

• Earnings Growth Model

• Reverse Discounted-Cash Flow

A comparison of the Forward PE multiple with its historical average.

The first thing we do is compare the current forward PE with its historical average over the past 10 years.

This is a shortsighted method, but it already gives a quick indication.

Today, Arista Networks trades at a forward PE of 37.7x compared to the historical average of 32.1x over the past ten years.

Earnings Growth Model

This model shows you the yearly return you can expect as an investor.

In theory, it’s easy to calculate your expected return:

Here are the assumptions I use:

• EPS growth: 12.5% per year over the next 10 years

• Dividend Yield: 0.0%

• Forward PE to decline from 37.7X to 32.0x

Based on these calculations, the expected return is 11.0% per year.

This looks very good.

Reverse DCF

Charlie Munger once said that if you want to find a solution to a complex problem, you should invert. Always invert. Turn the problem upside down.

This is exactly what a reverse DCF does. As an investor, we don’t make assumptions. We simply look at what assumptions the market has made and see whether they are reasonable.

You try to determine for yourself whether these expectations are realistic or not.

You can learn more about a reverse DCF here: Reverse DCF 101.

The expected Free Cash Flow of Arista Networks over the next 12 months equals $5,130.0 million.

We subtract the Stock-Based Compensation ($467.0 million) and add the Growth CAPEX ($26.5 million).

Growth CAPEX is calculated by subtracting Depreciation & Amortization from total CAPEX, helping to separate investment spending from maintenance costs.

This brings the FCF in year 1 to $4,689.5 million

The reverse DCF indicates that Arista should grow its FCF by 18.9% each year for the coming 10 years to achieve an annual return of 10% for shareholders.

Although Arista Networks grew Free Cash Flow at a 46.7% CAGR over the past decade, it’s uncertain if this growth rate can be sustained.

• Forward PE: 37.7x (lower than its 10-year average? < 32.1x? ❌)

• Earnings Growth Model: 11.0% (Yearly return > 10%? ✅)

• FCF-Growth Reverse DCF: 18.9% (Realistic growth expectations?❓)

14. How did the Owner’s Earnings of the company evolve in the past?

Over time, stock prices tend to follow the Owner’s Earnings (EPS Growth + Dividend Yield) of the company.

That’s why we want to invest in companies that managed to grow their Owner’s Earnings at attractive rates in the past.

This is certainly the case for Arista:

• CAGR Owner’s Earnings (5 years): 34.6% (CAGR Owner’s Earnings > 12%? ✅)

• CAGR Owner’s Earnings (10 years): 34.1% (CAGR Owner’s Earnings > 12%? ✅ )

15. Did the company create a lot of shareholder value in the past?

We want to invest in companies that managed to compound at attractive rates in the past.

Ideally, the company returned more than 12% per year to shareholders since its IPO.

Here’s what the performance of Arista Networks looks like:

• YTD: +5.3%

• 5-year CAGR: 48.6%

• CAGR since IPO (2014): 36.7% (CAGR > 12% ✅)

Arista Networks has created significant shareholder value in the past.

Now let’s dive into the conclusion.

Should you buy Arista Networks?

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Since I started Compounding Quality, dozens of brands have reached out asking to partner.

I’ve turned almost all of them down.

The reason is simple: I don’t want to fill your inbox with sponsored content that neither you nor I genuinely believe in.

But Fiscal.ai is different.

Partnering with them was an easy decision.

I use their platform every single day to research quality companies.

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A Bloomberg Terminal costs more than $24,000 (!) per year.

Here’s what you get with Fiscal.ai:

• The best stock screener I’ve used, perfect for finding quality compounders

• Beautiful, customizable charts with decades of financial history

• Segment-level KPIs that most platforms simply don’t track

• Earnings call audio and transcripts, plus investor conferences

• Morningstar research reports

• Holdings of legendary investors (Buffett, Ackman, Terry Smith, and many more)

• Analyst estimates and consensus data

• An AI assistant that surfaces insights and points you to the source

• And much, much more

Only twice a year, Fiscal.ai offers a 25% discount for one week only.

We’re in that window right now. It ends today (Thursday).

If you miss it, the next chance to get this price will be at the end of November.

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This will be the only email I send you about this offer.

If you want it, don’t wait.

After today, you won’t see this discount again until November.

👉 Get 25% off Fiscal.ai

Everything In Life Compounds
Pieter
PS: If you already subscribed to Fiscal.ai earlier, you were likely grandfathered in at your original (often lower) price, so no action needed.

Disclaimer

As a reader of Compounding Quality, you agree with our disclaimer. You can read the full disclaimer here.As a reader of Compounding Quality, you agree with our disclaimer. You can read the full disclaimer here.

I must say I’m a bit jealous. He has the incredible skill to make complex things easy.

In today’s article, I’ll share 10 things I have learned from him.

Subscribe now

1. The Millionaire Janitor

Ronald James Read was a janitor, gas station attendant, … and millionaire.

Nothing about Ronald’s life was special: he lived…

Read more

You must realize that you are way less diversified than you might think.

Let’s talk about an interesting S&P 500 alternative I heard about at Warren Buffett’s AGM.

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The S&P 500

The S&P 500 is the most popular index in the world.

It’s also incredibly popular with passive investors.

The three largest ETFs in the world all track the S&P 500:

Together, they have more than $2 Trillion (!) in assets.

But when I was in Omaha last weekend, some concerns kept coming up again and again.

The S&P 500 Is Expensive

The price you pay matters.

The S&P 500 index looks expensive today.

The Shiller P/E Ratio, also called the CAPE Ratio, compares a stock’s current price to its average inflation-adjusted earnings over the past 10 years.

Using 10 years of earnings helps smooth out short-term market ups and downs that can distort regular one-year P/E ratios.

Right now, it’s over 40.

It approaches the valuation we saw before the 2000s dot com crash.

The S&P 500 doesn’t look like much of a bargain on a Forward P/E basis either.

The S&P 500 Is Concentrated

Another concern that came up over and over is the concentration in the S&P 500 index.

Because it is weighted by market cap, the top 10 companies make up nearly 40% of the index.

Over the past 140 years, the average concentration for the top 10 stocks was 24%.

The index concentration has (almost) never been higher:

But in Omaha, Christopher Bloomstran pointed out something interesting.

In the past, even when the index was concentrated, the companies were usually not all tied to the same trend or idea.

For example, the “Nifty Fifty” stocks of the 1960s made the index more concentrated, but the companies operated in different industries.

They included names like IBM, Coca‑Cola, Xerox, and Polaroid.

Even in 2000, not all the companies were internet companies:

Companies like Walmart, Exxon Mobil, and Citigroup had nothing to do with the internet boom.

Today’s top 10 stocks are much more connected to the same trend.

8 of the 10 are now related to Artificial Intelligence.

The math behind AI spending is not very encouraging.

The hyperscalers are expected to spend $700 billion on AI infrastructure in 2026 alone.

To earn a 10% return, they would need to generate $70 billion in profit from that investment.

AI revenue is growing quickly, but it still is very early in the journey.

All AI-related revenue was estimated at only about $40 billion in 2025.

If AI businesses earn a 10% profit margin, they would need $700 billion in revenue to generate a 10% return on that spending.

This raises an interesting question…

Why Do Investors Buy The Index?

The S&P 500 does have some really attractive features that make it such a popular investment.

• Diversification: you get a piece of 500 of the best companies in the world

• Low costs: most index funds cost less than 0.5% to own

• It lets winners run, and losers drop out: Peter Lynch’s idea of watering the flowers and cutting the weeds happens automatically

• It’s performed well over the long-term

These are great reasons to invest in the S&P 500, but as you have just seen, the index isn’t as diversified as it once was.

And as every disclaimer says, past performance is not a guarantee of future results.

Based on valuation alone, the future returns of the S&P 500 look much lower than they have been in recent years.

When you combine high valuations with the difficult math behind earning strong returns on AI spending, future returns start to look even less attractive.

It would be ideal to get the benefits of the S&P 500 at a lower price and with less concentration in AI-related companies.

Interestingly, several investors in Omaha presented ideas for exactly that kind of investment.

The S&P 500 Alternative

Investing in Berkshire Hathaway could be a very interesting alternative to the S&P 500.

Here are a few reasons why:

• Diversification

• Low cost

• Let your winners run

• Amazing returns

Diversification

Berkshire Hathaway gives you ownership in 26 public companies through its stock portfolio.

It also includes more than 60 private companies that are fully owned by Berkshire.

Those include names like:

• BNSF Railroad

• Dairy Queen

• Clayton Homes

• GEICO

• NetJets

• Duracell

• Fruit of the Loom

• …

On top of that, they also have the massive insurance operation as well as Berkshire Hathaway Energy.

I would say that Berkshire Hathaway is very well diversified.

Low Cost

This one is easy …

While the fees to own an S&P 500 ETF are very low, there are no management fees to own Berkshire Hathaway stock.

Let Your Winners Run

Warren Buffett has said many times that his favorite holding period is forever.

When Berkshire Hathaway buys something it does so with the intent of holding on for the long term.

Warren Buffett started buying Coca-Cola in 1988.

See’s Candies was bought in 1972.

Both companies have performed exceptionally well for Berkshire Hathaway.

Past Performance

Another easy one.

Over the long-term, Berkshire Hathaway has performed significantly better than the S&P 500.

When you buy Berkshire Hathaway, you get a diversified bet on the American economy.

They have performed really well and have a lot of cash on the sidelines to deploy when the market crashes.

In addition, it’s not one big bet on AI.

They own a lot of companies that are hard for AI to disrupt.

Think about their railroad companies, energy, Clayton Homes, …

You get Greg Abel allocating capital for you.

The man Warren Buffett picked himself.

Berkshire is also available at a much more reasonable valuation than the S&P 500.

We know that Greg Abel thinks Berkshire Hathaway is undervalued, as he started buying back the stock.

Christopher Bloomstran estimates Berkshire Hathaway B shares to be worth between $560 and $580 in his most recent letter (current stock price: $475).

Berkshire has more than $300 billion in cash to deploy when attractive opportunities arise.

If you want a diversified U.S. investment that isn’t tied to big tech and AI, Berkshire Hathaway is an interesting idea.

ETF Portfolio Update: April 2026

Our ETF Portfolio is a great mix of ETFs that should be able to outperform in the long term.

We use multiple factors that tend to do well:

👑 Quality: Only invest in companies that have already won
📏 Size: The smaller the better
🚀 Multifactor: Quality, size, value & momentum
🌏 Emerging Markets: Small exposure to Emerging Markets

Let’s now dive into the ETF Portfolio itself.

You have 24/7 access to the ETF Portfolio here:

Read more

We decided to add a few amazing companies to our Buy-Hold-Sell List.

Let’s inspire you with some amazing investment ideas.

Mr. Market remains very bullish on AI.

At the Berkshire AGM in Omaha, some of the world's top investors warned that the market could be in serious trouble.

Read more

In this series, I’ll teach you 5 things about the stock market in less than 5 minutes.

1️⃣ The Coffee Can Millionaire

Back in 1984, a man named Bob Kirby told a story about a widow.

She inherited her husband’s stock portfolio.

She took the paper stock certificates and put them in a coffee can.
Then she forgot about them for decades.

Whe…

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What’s going on in the markets? And what are our favorite stocks?

Let’s get a little bit wiser today.

April 2026

The S&P 500 rose by 9.7% in April.

Investors are greedy today according to the Fear & Greed Index:

Best & Worst Performers

This overview shows you the best and worst performers in our investable universe.

Worst performers

The cheaper we can buy great companies, the better.

Here are the worst performers of the past month:

Best performers

These stocks did well over the past month:

🏗️ Spotlight: QXO, Inc. ($QXO)

How Does The Company Make Money?

QXO is a distributor of building products.

They act as the middleman between manufacturers and contractors.

The company is a serial acquirer. They recently acquired TopBuild.

As a result, they are now a clear market leader:

• #1 in insulation

• #2 in roofing

• #1 in waterproofing

• #1 or #2 in the lumber and building materials sector

Why does it deserve to be in the spotlight?

We can’t talk about QXO without talking about its founder.

Brad Jacobs is widely considered one of the most successful serial consolidators in business history.

He founded eight separate billion-dollar companies and wrote two must read books:

• How to make a few billion dollars

• How to make a few extra billion dollars

(Watch out. If you’re reading these books in public, people look at you strangely. I speak from personal experience)

His strategy is a three-step formula.

He used it over and over to build dominant companies in different industries.

1. Identify a Fragmented, Analog Industry: Jacobs looks for large markets with thousands of small, local players using outdated technology.

2. Buy the Anchors: He raises massive amounts of capital upfront to buy the biggest and most important players in the industry. This gives him immediate scale and purchasing power that no local competitor can match.

3. Use Tech to Become Efficient: Once he owns the companies, he puts teams into place to get rid of inefficient processes and replace them with high-tech solutions. At XPO, he used AI to optimize truck routes, at QXO, he is using it to centralize pricing and inventory across 1,150+ locations.

The track record of Brad Jacobs is phenomenal:

• United Waste Systems (1989): Sold it for $2.5 billion

• United Rentals (1997): Built the world’s largest equipment rental company from scratch

• XPO Logistics (2011): Grew revenue from $175 million to $15 billion

QXO is his latest project.

He is applying his successful playbook to the $800 billion fragmented building products industry.

In the past 12 months alone, QXO has spent over $30 billion on acquisitions.

The TopBuild Acquisition

The biggest catalyst for QXO is the $17 billion acquisition of TopBuild (BLD).

The acquisition was announced in April 2026.

TopBuild is the largest distributor and installer of insulation and related building products in North America

I know the company well as I used to follow it when I was involved in the daily management of a Climate Fund.

The stock is up +444% since 2020.

It’s Revenue and EPS grew very attractively too:

Why this deal matters:

• Market Leadership: It makes QXO the #2 largest building products distributor in North America

• Scale: The merger adds $6.2 billion in annual revenue and over 400 locations

• Cost Savings: Management expects to realize $300 million in annual synergies by 2030 through scaled procurement and logistics

Another important thing about TopBuild?

It has a much higher margin than QXO.

Before this acquisition, QXO had an Adjusted EBITDA margin of around 8%.

TopBuild has margins closer to 18%.

QXO estimates that the combined company will have EBITDA margins of around 12%.

QXO is now the #1 or #2 player in almost every category it touches.

Brad Jacobs added another $6.2 billion in revenue with this acquisition.

On top of that, he bought market dominance and a wider moat.

We love businesses that sell essential products with high switching costs led by world-class management.

Best Buys April 2026

Let’s dive into our five favorite buys for the month.

Please note that the companies in Our Portfolio are not mentioned here.

We love all companies in Our Portfolio right now.

5. Fair Isaac Corporation ($FICO)

How does Fair Isaac make money?

FICO licenses their proprietary credit scoring algorithm to major credit bureaus (Equifax, Experian, and TransUnion).

FICO’s is down over 55% (!) from its peak:

What happened?

In April, the The Federal Housing Finance Agency (FHFA) announced they are officially moving forward with VantageScore 4.0.

It will be used as an alternative to FICO for mortgage underwriting.

Why this drop can be a long-term opportunity (and not a disaster):

1. Even if lenders add VantageScore, they’ll still pull FICO alongside it. In lending, more data beats different data

2. Regulations and internal risk models are deeply tied to FICO. Switching to VantageScore means a multi-year infrastructure overhaul most banks won’t risk

3. FICO’s price hikes are negligible on a $500K mortgage. Lenders care about predictive accuracy, and FICO 10T is still the gold standard

FICO is now very close to the lowest Forward P/E we’ve seen in a decade.

Earlier this week, FICO reported great results.

It seems like the investment thesis is not broken after all.

4. Hermès ($RMS)

How does Hermès make money?

Hermès is the king of luxury. They are known for their Birkin and Kelly bags.

The French company uses scarcity as a marketing tool.

They intentionally limit their supply to sell at very high prices.

Hermès operates in three main segments:

• Leather Goods and Saddlery (~43% of revenue): This is the biggest segment and includes the iconic Birkin and Kelly bags

• Ready-to-wear and Accessories (~28%): High-end clothing and footwear

• Other (Silk, Watches, Perfume, etc. ~ 29%): Complementary luxury items

The financial performance is amazing.

In 2025, Hermès grew its revenue to €16 billion (up 9% at constant rates) with an operating margin of 41%.

Why does it deserve to be in the spotlight?

Hermès is the ultimate Veblen Good.

This means that as the price goes up, the demand increases because the prestige grows.

1. You cannot simply walk into a store and buy a Birkin bag. Hermès makes you put your name on a waitlist

2. Hermès owns its supply chain, from the tanneries to the workshops. This lets them completely control quality in a way competitors can’t.

3. Hermès caters to the ultra-wealthy. During downturns, their spending tends to hold up better than most consumers. That’s why Hermès is often the last luxury brand to feel a slowdown and the first to recover.

Now let’s dive into the top 3.

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As you are reading this, I’ll be high in the sky.

Why? I’m flying from Brussels to Omaha to attend the Berkshire AGM.

This will be the fourth year in a row that I attend the Berkshire AGM.

My schedule looks as follows:

If you’re in Omaha as well, just let me know and you’re very welcome to attend the meetup TJ and I are organizing.

• When: Saturday 2 May between 8:15 PM and 10:15 PM

• Where: Howard & Fine (inside Moe & Curly’s Pub and Grill - Omaha)

Register here for free:

I want to attend the meeting

The Fairfax Way

As this will be the first AGM since Warren Buffett ‘retired’, the big question is how Berkshire Hathaway will evolve from here.

I don’t think there is a next Berkshire Hathaway out there.

However, there are some companies that come close.

A book I recently read? The Fairfax Way.

The book tells the story of how Prem Watsa copied Berkshire Hathaway’s business model and became tremendously successful over time.

When Prem Watsa took charge of Faifax in 1985, the company traded at a stock price of 3.25 CAD.

Today Fairfax’s stock price equals 2,346 CAD.

That’s almost a 1.000-bagger (!).

It’s an understatement saying that Prem Watsa has done a tremendous job at Fairfax.

It’s no coincidence that people call him the Canadian Warren Buffett.

The shareholder letters of Prem Watsa are a must read. You can find them here.

(I am currently reading them on my flight to Omaha).

To conclude, I think Fairfax is an amazing company that will continue to do well in the years ahead.

I estimate the intrinsic value of Fairfax equals 3,000 CAD.

As the current stock price equals 2,340, this implies a discount of 22%.

We would love to buy Fairfax on weakness.

Adding to the Portfolio

Now let’s dive into the three companies we’re buying tomorrow.

Read more

Over the past few weeks, we’ve been giving you an extensive Portfolio Update.

In case you missed it:

• Portfolio Update April 2026 (Part I)

• Portfolio Update April 2026 (Part II)

• Our Shopping List (Part I)

• Our Shopping List (Part II)

• Our Shopping List (Part III)

You know everything about our portfolio as well as the companies we might consider adding.

But how will the portfolio evolve from here?
How will we move forward?

Let’s find out.

The best of the best

Our investable universe consists of 153 stocks.

That’s 0.4% of the 40,000+ publicly traded stocks worldwide.

Only the best of the best is good enough for us.

We will continue to relentlessly track the underlying performance of our portfolio.

Why?

Stock prices always follow the evolution of the intrinsic value over time.

The intrinsic value is mainly driven by the EPS and Free Cash Flow Per Share growth.

But in the short run, stock prices and fundamentals can diverge a lot.

While this can be painful at the time, it’s also what creates big opportunities.

Warren Buffett says that’s what made him rich.

Today is such a time if you ask me.

It’s why we only worry about stock prices when we’re looking to buy or sell.

In the meantime, we focus on the underlying fundamental performance.

Here are the most important metrics to watch.

1. The evolution of the Free Cash Flow of Our Portfolio

2. Our Portfolio Fundamentals

3. Growth of the Owner’s Earnings

One thing I noticed as I was thinking about Our Portfolio?

Every single time I bought a company not because I thought it was the highest quality, but because it was cheap, it ended up being a mistake (so far).

Think about:

• Text SA

• OTC Markets

• Novo Nordisk

• …

A game of opportunity costs

While I believe that the companies we currently own will do fine in the long run, a lot of Quality companies are on sale right now.

We need to invest in the companies with the most upside potential according to us.

If we find better companies with greater upside potential, we should consider switching.

A great test to know if we own Quality companies?

Warren Buffett’s 10 year test:

We need to be willing to own every single stock within our portfolio if the market would close for 10 years.

Going Forward

Going forward, we’re raising the bar.

We’ll focus on buying even higher-quality businesses.

Because not all growth is created equal.

Think about it this way.

Let’s imagine two companies both grow their earnings at 10% per year.

• Company A: steady and reliable (year after year)

• Company B: Volatile… +30% one year, -15% the next, +20% the year after

Is Company A or B the most valuable?

It’s always Company A.

The linearity of growth matters a lot.

Here’s what we look for:

• Consistent revenue growth, not boom-and-bust cycles

• Earnings that compound smoothly over time

• A business model that is resilient

We want to find companies so predictable and durable that they keep compounding for decades.

The most serious candidates to be added to the portfolio fit this description.

Sell Candidates

The most serious candidates to consider selling are the ones we might not want to own if the stock market closes for 10 years tomorrow.

We did the exercise for our entire portfolio:

Read more

Over the past few weeks, we’ve been giving you an extensive Portfolio Update.

In case you missed it:

• Portfolio Update April 2026 (Part I)

• Portfolio Update April 2026 (Part II)

• Our Shopping List (Part I)

• Our Shopping List (Part II)

Subscribe now

Let’s dive in the final part of Our Shopping List today!

Investor AB ($INVE-B)

How does the company make money?

Investor AB is the Wallenberg family’s listed holding company.

That means it combines two interesting things:

1. A holding company, a type of asset that often trades at a discount to the assets it owns

2. A family owned business, meaning there’s a lot of skin in the game

Investor AB owns significant stakes in Sweden’s industrial champions like Atlas Copco, ABB, and AstraZeneca.

They focus on long-term ownership, active board engagement, and capital allocation across listed and unlisted assets, funded by dividends and occasional asset sales.

Why is it an interesting company?

• The best of Europe in a single share: Buying Investor AB gives you exposure to a pre-built collection of world-class companies like AstraZeneca (medicine), Atlas Copco (industrial tools), and ABB (robotics). It is effectively a curated fund run by one of the most proven families in European business.

• Wonderful companies at a fair price The stock trades near its intrinsic value

• An amazing track record: Over the past decade, earnings have grown by nearly 25% per year. The stock has nearly doubled over the past five years. Plus, they pay a growing dividend that has never been cut.

• Solid balance sheet: The company has very little debt. That means they aren’t just safe during a market crash, they actually have the cash to go shopping for more companies when prices are low.

• The main risk is market exposure: Roughly 70% of the portfolio consists of publicly traded securities. When global markets sell off, Investor AB’s net asset value will decline with them. It’s a great long-term bet, but you should expect some volatility along the way.

At which price are we interested?

Like most holding companies, Investor AB frequently trades at a discount to the underlying value of its assets.

I think it starts to get interesting at a P/B ratio of 0.9x.

That implies a stock price of around 281 SEK (current stock price: 372 SEK).

KKR ($KKR)

How does the company make money?

KKR is an American private equity company.

They use money from big clients (like pension funds) to buy and grow other companies, invest in infrastructure and private credit.

They earn recurring fees on the assets they have under management, as well as performance fees (typically around 20%) when they sell an investment for a profit.

Why is it an interesting company?

• Strong track record: KKR manages $744 billion across private equity, real estate, infrastructure, and credit. They’ve been doing this since 1976 and are one of the best in the world at it.

• Permanent capital: KKR bought Global Atlantic, a life insurer, giving them $321 billion in permanent capital, money that never leaves. They use it to fund their own deals, meaning they can invest without outside money and keep all the profit.

• Locked in profits: Most KKR funds have lockup periods of 7-12 years. That means 92% of their AUM is basically locked in. This gives them stable fees and they don’t have to worry about investors panicking and pulling their money out during a market crash.

• Massive growth: In 2025, they raised $129 billion in new investment capital. They expect to continue raising over $115 billion every single year, proving that big investors still trust them with their cash.

• The stock is on sale: The stock is down nearly 21% this year due to fears around private credit. But KKR’s actual direct lending exposure is just 21% of assets. This looks like an overreaction and a potential opportunity.

At which price are we interested?

KKR is currently trading near its average Forward P/E over the past decade.

I would say KKR is at or very near an interesting price to buy.

Insiders seem to agree as they have been buying as of late.

Lifco ($LIFCO-B)

How does the company make money?

Lifco is a Swedish serial acquirer focused on small, niche businesses in dental supplies, demolition tools, and systems solutions.

It buys the #1 or #2 company in these small markets, holds them for the long term, and makes them more valuable by improving their operations and buying complimentary companies.

It’s a page right out of Constellation Software’s playbook.

Why is it an interesting company?

• It’s the Swedish Constellation Software: Lifco acquires small, profitable niche businesses and lets them run independently. The decentralized model works. Revenue has grown at more than 13% every year for a decades, and EPS has grown even faster at more than 16% every single year.

• It’s got a strong moat: Lifco targets tiny market leaders in specialized niches. Think dental implant systems where switching costs are high, or demolition robots where they set the standard. These companies are too small for larger players to even look at.

• The price is getting interesting: Lifco is back to prices we haven’t seen since 2024. It’s not an obvious bargain, but companies of this quality rarely are.

• The balance sheet is solid: Interest coverage sits at 10.0x and debt-to-equity at 0.3x. That means they have a solid foundation to keep buying companies.

• Serious skin in the game: Carl Bennet owns 50% of the company. The chairman has over half his wealth tied to Lifco’s success. That means the people leading the company are incentivized to make sure you succeed along with them.

At which price are we interested?

Lifco is never a cheap company.

Since 2020, the cheapest it’s gotten was a Forward P/E of 20x.

We’d love to have another opportunity to buy it at that valuation.

That implies a stock price of 191 SEK (current stock price: 304 SEK).

Now let’s dive into the final companies.

Read more

Over the past few weeks, we’ve been giving you an extensive Portfolio Update.

In case you missed it:

• Portfolio Update April 2026 (Part I)

• Portfolio Update April 2026 (Part II)

• Our Shopping List (Part I)

For every company in the Portfolio, you found out about our conviction levels.

And you’ve also found out about opportunity costs.

When you find a company with a higher expected return than one you’re currently invested in, you should consider making the switch.

Let’s dive into the companies we’re considering adding to the portfolio.

Our Shopping List: Part 2

Fairfax Financial Holdings ($FFH)

How does the company make money?

Faifax Financial Holdings is a holding company.

It’s a Canadian company operating a collection of global insurance and reinsurance businesses, collecting premiums upfront and investing the float before claims are paid.

The CEO Prem Watsa takes an opportunistic, value-oriented approach to investing the float, adding a second engine of returns alongside underwriting profit.

The goal of the company is to grow its book value by 15% per year on average in the long term.

In essence, Fairfax copied the business model of Berkshire Hathaway.

I’m currently reading the book The Fairfax Way. It’s a must read.

Why is it an interesting company?

• The man who made $3 billion from a single bet: Prem Watsa, Fairfax’s CEO, called the 2008 financial crisis before almost anyone. He runs this company like his personal investment fund; with deep conviction and zero interest in short-term noise.

• Two ways to make money at the same time: Fairfax earns on insurance premiums and on its investments simultaneously. When both engines fire together, the returns can be very powerful.

• Growing in places most competitors ignore: Around 25% of Fairfax’s business comes from faster-growing markets outside North America (like India). That’s a growth lever most insurance peers simply don’t have.

• A great business at a cheap price: Fairfax has compounded book value at 12% per year for over a decade. The stock trades at just 8x earnings. You’re not paying much for something that has consistently delivered.

• The CEO hasn’t given himself a raise in 25 years: Watsa has kept his salary at CAD 600,000 since 2000. He’s not here for the paycheck. He owns the stock. His interests and yours are exactly the same.

At which price are we interested?

Fairfax is an amazing business.

Just look at how the intrinsic value evolved over the years (the stock price followed):

The company massively outperformed over the past 40 years:

In general, it’s quite hard to value Fairfax Holdings.

You should make an estimate of its intrinsic value.

I would be interested in owning Fairfax at 1.2x book value.

This implies a stock price of 1,777.5 CAD (current stock price: 2.472 CAD).

Fortinet ($FTNT)

How does the company make money?

Fortinet is a cybersecurity company.

They sell network security hardware (firewalls) as an entry point. Afterwards, they make high-margin recurring revenue through software subscriptions and support contracts.

Fortinet has a strong vertically integrated model. This gives them a clear cost and performance advantage.

Why is it an interesting company?

• Cybersecurity spending only goes up: Hackers get smarter every year. Fines get bigger. Fortinet’s products stop being a nice-to-have and become a must-have.

• Once you’re in, you don’t leave: Switching means retraining your team, ripping out systems, and leaving yourself wide open to attacks in the process. As a result customers stay.

• The more customers they have, the better the product gets: Fortinet collects live threat data from 800,000+ customers. More data means faster detection. Faster detection attracts more customers. The flywheel keeps spinning.

• Two new growth engines are just getting started: SASE and SecOps now make up 38% of billings and are growing by 40% per year. They are sold directly to existing customers at almost no extra cost.

• The business gets more profitable every single year: More software, less hardware. Operating margins are expected to climb from 30% today to 36% by 2030. Same revenue base, more profit flowing through.

At which price are we interested?

Fortinet currently trades at a Forward PE of 29.2x.

Stock Based Compensation equals 15% of Fortinet’s Net Income.

If we adjust for this, the adjusted Forward PE equals 33.6x.

We would love to own Fortinet at 25x their adjusted Forward PE.

This implies a target price of $65.7 (current stock price: $85.1).

Heico ($HEI)

How does the company make money?

Heico produces FAA-approved aircraft replacement parts at meaningfully lower prices than original equipment manufacturers.

This saves airlines and MRO shops significant cost.

It also runs a repair and overhaul segment, and grows steadily through disciplined bolt-on acquisitions of niche aerospace businesses.

Why is it an interesting company?

• They sell the exact same airplane parts for 30-40% less: Airlines have to maintain their planes no matter what. Heico reverse-engineers the exact same parts, gets approval, and undercuts the original manufacturers on price.

• Getting in the industry is nearly impossible: Years of regulatory approvals, millions in R&D, hundreds of certified parts just to be a viable alternative. Heico already has all of that. New competitors start from zero.

• Once Heico is in, nobody switches: Airlines can’t gamble on untested parts. Heico has a 30-year record of zero in-flight part failures. That track record is priceless and nearly impossible to replicate.

• Defense is a whole second business: Heico’s components sit inside targeting systems, satellites, and missile guidance systems. When you’re that deeply embedded in critical defense hardware, nobody swaps you out for a cheaper option.

• The numbers keep getting better: 14% revenue growth and 15% operating profit growth last quarter. Older planes are flying more than ever, and original manufacturers keep raising prices, which only makes Heico’s discount more attractive every year.

At which price are we interested?

Heico is an amazing company that has always been expensive/

They currently trade at a Forward PE of 46.7x.

I would only be willing to pay 30x earnings for Heico.

This means we’re interested at a price of $178 (current stock price: $270).

Now let’s dive into the final 4 companies.

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