He returned 12.6% per year to shareholders since 2009.

Let’s dive into the lessons and philosophy of this legendary investor.

Subscribe now

Who is Chuck Akre?

Chuck Akre is a highly respected investor.

He is known for his disciplined approach and long-term mindset.

Akre is seen as one of the best quality investors in the world.

Chuck A…

Read more

Today we will buy a very boring company.

This company:

• Was the clear market leader 20 years ago

• Is still the market leader today

• Will (probably) still be the market leader in 20 years from now

The average yearly return since 1990? +14.4% per year.

An investment of $10.000 turned into $1.4 million.

Those are exactly the companies we’re looking for.

Read more

They dominate the entire market for diabetic and obesity care together with Novo Nordisk.

Here’s what a $10,000 would be worth since 1992:

• S&P 500: $0.3 million

• Eli Lilly: $1.8 million

Eli Lilly – General Information

👔 Company name: Eli Lilly and Company
✍️ ISIN: US5324571083
🔎 Ticker: LLY
…

Read more

Typically, he doesn’t trade much.

But in the first six months of 2026, he turned over more than 50% of his portfolio.

He even announced a major shift in his investment strategy.

Let’s see what’s happening.

Who is Terry Smith?

Terry Smith is often called “The English Warren Buffett”.

He’s considered as one of the best quality investors in the world.

Terry typically is very straightforward and an independent investor.

His background looks like this:

• Grew up in East London, was at the top his class in history at Cardiff, and entered banking at Barclays in the 1970s.

• In 1992, he wrote Accounting for Growth, a book that exposed corporate accounting tricks and was so controversial that it got him fired.

• Launched Fundsmith in 2010. Today, it manages £12 billion and has achieved an impressive 13.1% CAGR after fees since inception.

Pieter even had the opportunity to have dinner with Team Fundsmith in Omaha at Gorat’s last year (Warren Buffett’s favorite steakhouse).

Investment Style

Terry Smith’s philosophy is simple.

It comes down to three steps:

1. Buy Good Companies

Terry Smith looks to buy high-quality businesses that dominate their markets.

• High ROCE: Look for a Return on Capital Employed of more than 15–20%

• Wide Moats: Focus on companies with pricing power and high gross margins

• Cash is King: Prioritize strong organic growth and businesses that convert a lot of their net earnings into free cash flow.

2. Don’t Overpay

While quality comes first, valuation still matters.

He is willing to pay a fair premium for an exceptional business but tries to avoid overpaying.

3. Do Nothing

Minimizing trading keeps fees low and lets compounding do the work over time.

Patience has been one of Terry’s main advantages.

The Fundamentals

Fundsmith does hold a portfolio of companies with great fundamentals:

Performance

Over the long term it has allowed the fund to outperform.

Fundsmith generated a CAGR of 13.1% after fees since 2010.

But guess what?

Terry Smith has underperformed every single year over the past 5 years:

Which brings us to the letter Terry Smith recently wrote to his investors.

You can read it here:

Shareholder letter Terry Smith

Shareholder Letter Terry Smith

There are two things I want to focus on today:

1. Why he thinks he has underperformed

2. How he is shifting his strategy

Why he has underperformed

The letter says the fund underperformed because investors cared more about momentum than business fundamentals.

I think that’s true, and we’ll explain Terry’s argument in a moment.

How he is shifting his strategy

Because of that, Smith says that the fund will be changing strategy and taking momentum into account.

That means the fund will be buying and selling more than it has in the past.

In other words, Buy Good Companies and Don’t Overpay are still the core principles.

But there will be a little less Doing Nothing going forward.

The interesting part is why Terry is making this change.

It’s not because he thinks it’s the best investment decision.

It’s because if he didn’t adapt, the fund would eventually go out of business.

Passive Investing and Momentum

Terry has been talking about the markets becoming increasingly more momentum driven for quite some time.

And there’s no argument that he’s wrong,.

Just look at how momentum has been outperforming everything else lately:

He starts his letter with a simple point.

More people are investing in ETFs.
At the same time, excitement around AI is growing.

As a result, the market cares less about the underlying businesses.

What’s the point of passive investing?

Passive investing was popularized by John Bogle, who founded Vanguard.

Bogle’s argument was pretty simple:

• Most active funds fail to beat the market. On top of that, they charge fees that reduce your returns.

• Index funds remove those high fees and simply match the market’s average return.

As a result, investors often end up with more money.

Makes sense.

But if that argument holds true, then shouldn’t the index and the average manager perform similarly?

They used to, but that’s started to change:

Some people argue that this is evidence that the average fund manager is terrible.

According to them, it’s why everyone should just switch to passive.

Passive investing is now driving the market

That could be true.

But Terry offers another explanation.

A momentum driven feedback loop:

There’s pretty good evidence this is correct.

Here’s the performance of the S&P 500 vs Hedge Funds from 2007 to 2016.

I’d say that’s a pretty good representation of passive vs active performance.

They run close together until somewhere in 2012 or 2013.

Afterwards the S&P 500 starts to outperform.

You can see the flows of capital of active versus passive here:

Money flowing into active funds peaked around 2012 or 2013.

Since then, those flows have declined.

Meanwhile, money has kept pouring into passive funds.

This creates two powerful feedback loops:

• Passive funds: More money comes in → they buy more stocks → prices rise → performance improves → even more money comes in.

• Active funds: Money flows out → they sell stocks → prices fall → performance gets worse → even more money flows out.

As a result, the stocks passive funds own become more expensive, while the stocks active funds own become cheaper.

That makes passive funds look even better and active funds look even worse, simply because of where the money is flowing.

Today, passive funds manage more than 60% of all assets under management.

This has never happened before.

Trades set prices

The stock market is like a big auction.

Stock prices change every time someone buys or sells.

Every Trade Needs Two Sides

You can only buy a stock if someone else is willing to sell it.

And you can only sell a stock if someone else is willing to buy it.

It sounds obvious, but it’s an important concept.

How the auction works

To make trades happen, the stock market uses an ongoing list of offers called the Bid and the Ask.

• The Bid: is the highest price a buyer is currently willing to pay for the stock

• The Ask: is the lowest price a seller is currently willing to accept

The difference between these two numbers is called the spread.

It’s all tracked in the order book, which looks like this:

In the image, there are a lot of people willing to buy at $37.37.

But the lowest price anyone is willing to sell is $37.38.

As a result, no transaction will take place.

How the Price Actually Moves

For a stock price to move, either the buyer or the seller has to give in.

• If buyers are eager: They stop waiting and agree to pay the seller’s asking price. The trade happens, and the stock price moves up. If more buyers keep doing this, the price keeps rising.

• If sellers are eager: They accept the buyer’s lower price. The trade happens, and the stock price moves down. If more sellers keep doing this, the price keeps falling.

Who’s making the trades?

If trades set prices, then we need to understand who’s making the trades.

Terry Smith tells us:

When Jack Bogle introduced index funds, the idea was simple.

Index funds would stay small and benefit from the research done by professional stock pickers.

At the time, active investors made up almost the entire market.

But that’s no longer true.

Today, a large part of the market is driven by index funds, ETFs, quant funds, and momentum traders.

Only a small share of trading comes from investors who actually read annual reports and research individual companies.

Index funds and ETFs follow a very simple strategy:

• Money comes in → Buy

• Money goes out → Sell

Index funds and ETFs don’t care about price.

They simply buy or sell based on money flowing in or out.

Think back to the auction example.

If a lot of money flows into a fund and there aren’t many sellers, the price has to rise until someone is willing to sell.

The opposite is also true.

If a lot of money flows out and there aren’t enough buyers, the price has to fall until someone is willing to buy.

What happens next?

When index funds buy and sell without looking at price, they change how the stock market works.

But what happens if that buying and selling hits a market with fewer buyers and sellers than people expect?

In Part 2, we’ll show how this is already creating bigger swings in stock prices.

We’ll also explain why it could become a serious problem for the U.S. retirement system.

Stay tuned.

Conclusion

That’s it for today.

I think the move Fundsmith made is strange.

They are switching from quality to momentum right now.

They might be making the switch at exactly the wrong time.

Did you like this?

This was an article TJ wrote for Compounding Dividends.

You can discover more here:

Discover more

Everything In Life Compounds
Pieter

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 in the markets? And what are our favorite stocks?

Let’s get a little bit wiser today.

Subscribe now

June 2026

Last month, the S&P 500 fell by 1.5%:

Read more

Recently, many people asked me about MercadoLibre ($MELI).

This company:

🌎 Is often called the Amazon of Latin America
🚀 A remarkable growth story: revenue grew 30%+ for 28 straight quarters
💰 Trading at its cheapest valuation in 10 years

That’s why I teamed up with my friend Kris.

He’s an expert in growth investing.

I don’t know anyone who understands growth companies better than he does.

By the way, MercadoLibre is his largest position!

In this 40-minute webinar, you’ll learn everything you need to know:

Download the Deep Dive

Everything In Life Compounds
Pieter
PS You want to learn about MercadoLibre? Download the Deep Dive here (you can also watch it later).

Disclaimer

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

Someone recently called us ‘stupid’ for investing in quality stocks.

They said we’re missing a bull market that’s creating intergenerational wealth.

Let me be crystal clear…

I feel 100% comfortable with our portfolio and current positioning.

Let’s tell you exactly why.

What's happening right now

Mr. Market has entered into an exaggeration phase.

…

Read more

I hope you are having an amazing summer.

Let’s dive into Our Portfolio Update today.

What’s going on in the markets today? And how are our stocks doing?

Subscribe now

Chasing Momentum

Investors seem to continue to be focused on the short term and chasing momentum.

Remember when the Magnificent 7 were the most exciting stocks in the market?

Investors have already moved on.

Bill Ackman says the market is distracted by momentum and hype.

He sees companies like Microsoft and Meta as old-fashioned.

The market is distracted by big IPOs.

Here are just a few examples:

• SpaceX

• OpenAI

• Anthropic

• Stripe

Besides IPOs, the market focuses on memory stocks (manufacturers of semiconductor memory chips):

• Micron

• Western Digital

• Sandisk

They are all up +200 to +700% this year.

Just take a look at this chart shared by my good friend Sebastian:

A different kind of problem

Companies like SpaceX and OpenAI are having a different problem compared to memory companies right now:

• Companies like OpenAI, SpaceX, and Anthropic lose money every single month.

• Memory companies like Micron and SanDisk are currently making too much money.

I know it sounds strange to say a company can make too much profit.

Why might that actually be a problem?

Historically, memory has been a very cyclical business.

Just look at Micron’s revenue and net income:

Periods of high revenue and profits are almost always followed by periods of low revenue and profits.

Why?

Because memory is a commodity business.

These companies don’t have any pricing power.

Their profits are completely driven by supply and demand.

Can you imagine a company like Coca-Cola or Moody’s losing money because their customers demanded lower prices?

I can’t.

But that’s exactly what happened to Micron in 2023 and 2024.

Sumit Sadana, CEO of Micron, said that a couple of customers were aggressively pushing for lower prices.

The losses (and low demand for memory) stopped Micron from building new factories.

Now that AI is pushing memory demand up and supply is low, prices are sky high.

In the past, this caused competition and lower prices.

Look at the Gross Margins for Micron in 2018, they were much higher than normal.

But they came back down.

And Micron’s stock went down the year thereafter:

Today their margins are even higher than in 2018.

Micron’s elevated profits will probably last for a while, but here’s what Jeremy Grantham says:

Here’s the chart of Micron’s Revenue and Net Income from 2006 to 2028:

The market is clearly not expecting any mean reversion or increased competition.

Maybe this time really is different.

But that’s not a bet that I want to make.

And I don’t think you should do either.

Let’s now 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 our companies are 15% (!) cheaper than the S&P 500.

The S&P 500 continues to look very expensive.

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

Almost every company we own remains undervalued right now.

That means it’s a great time to buy a lot of the companies in Our Portfolio.

I feel very confident that Our Companies will be fine.

Why?

Because we own companies with durable competitive advantages.

In the short run, the prices can diverge a lot from the businesses fundamentals.

But in the long run, the business fundamentals will determine Our Results.

Just look at AbbVie (for clarity, we don’t own this company).

The price declined all through 2018 because of fear over some of its drugs losing patent protection.

In the meantime the Free Cash Flow kept increasing.

And over the next few years, the stock caught up and more than doubled.

Our Fundamentals

Here’s the situation for our companies right now:

• Expected Revenue Growth Rate (next 2 years): +6.8%

• Forward P/E Ratio: 17.1x

Do you know what it would take to give us a 10% return per year going forward?

• Grow Owner’s Earnings at the same rate at Revenue (6.8%, very conservative)

• And re-rate to just 20x Earnings

In other words, the expectations for our businesses are very low right now.

I think Mr. Market is underestimating Our Companies.

But he may be starting to catch on…

During speculative market runs like this one, boring, high-quality companies like Berkshire Hathaway often outperform in the years that follow.

Here’s how Berkshire has performed compared to the S&P 500 over the past year:

But if we look at the past month, it looks like we might be starting to see a rotation back into quality.

Let’s look at a few of our businesses and see what makes them so special.

Read more

Wealth is created when Mr. Market offers you wonderful companies at a fair price.

This is definitely the case for some stocks in our Buy-Hold-Sell list today.

World War II

In September 1939, the world was falling apart.

World War II was starting.

Newspapers predicted an economic collapse and stock markets were falling.

Most investors were paralyzed with fear.

But John Templeton picked up the phone and placed one of the boldest trades in investing history.

He borrowed $10,000 and bought 100 shares of every single stock trading below $1 on the New York Stock Exchange.

In total, he bought 104 companies. 34 of them were in the process of going through a bankruptcy.

His friends thought he’d lost his mind.

Four years later, Templeton had turned that $10,000 into $40,000.

He quadrupled his money while the world was literally at war.

He didn’t invest in hot stocks. He didn’t chase the headlines.

He bought boring, beaten-down businesses when everyone else was selling.

That’s the thing about looking dull in a bull market.

It feels embarrassing. It feels like you’re missing out.

The investors who look the most boring today are often the ones who make history tomorrow.

As the famous Warren Buffett quote goes:

Quality stocks are selling cheap

The most volatile, speculative stocks are hitting all-time highs.

The most fundamentally sound companies are sitting near multi-year valuation lows.

Sound familiar right?

Mr Market is rewarding momentum while it is punishing patience.

History tells a clear story: every period of quality underperformance has eventually been followed by a sharp reversal.

When the rotation comes, it comes fast.

We have already seen this over the past few weeks.

In the past month:

• Interparfums: +35.1%

• Brown & Brown: +26.9%

• Medpace: +23.7%

• …

Templeton once said: The time of maximum pessimism is the best time to buy.

We’re not at maximum pessimism.

But we are at a maximum discrepancy (the difference between quality and momentum).

That’s almost as good.

Let’s look at Dino Polska

Dino Polska can be seen as ‘the Costco of Poland’.

It runs a network of medium-sized grocery stores in Poland, located close to where people live.

It runs in a simple model that is hard to disrupt.

Over the past year, the stock is down over 40%:

And here’s what the business has done over the same period:

• Revenue: +15%

• New stores opened: 345

In the past 10 years, EPS has grown by 19.3% per year and the ROIC is well-above 15%.

The company now trades at its lowest valuation level ever:

Mr. Market is punishing Dino Polska.

Nobody wants to own a boring Polish grocery stores when you can buy SpaceX at 90x revenue.

In the meantime, Dino Polska will silently keep growing:

So what can we expect from Dino Polska?

I expect an EPS of 2.4 PLN in 2028.

If we assume a FWD PE of 20x, this would imply a stock price of 48 PLN (current stock price: 28.7 PLN).

This means the upside potential equals 70%, implying a yearly return of over 20%.

Update Buy-Hold-Sell List: June 2026

Let’s now update our Buy-Hold-Sell List.

Worst performers

Here are the 10 worst performers on our watchlist so far this year:

Best performers

The 10 best performers look as follows:

Changes to the Buy-Hold-Sell list

Now let’s look into the changes on our watchlist.

We added three more amazing companies to our watchlist:

• Xylem ($XYL): US-based water technology company

• Ferrari ($RACE): Luxury sports car manufacturer

• Schneider Electric ($SU): Industrial automation company

Currently there are 54 stocks on ‘Buy’.

This number has never been higher.

You can download the entire Buy-Hold-Sell List here:

Read more

Summer is just around the corner.

An ideal time to relax with friends & family, and read a great book.

Let’s get inspired.

Here are 10 books I recently read and truly enjoyed.

The importance of reading

Think about it for a second…

… Have you ever met a very smart person who didn’t read a lot?

The goal is to go bed a little bit smarter than when yo…

Read more

Today, you will receive a full investment case of 186 (!) pages about HEICO

If you invested $10.000 in 1990, you would have $13.9 (!) million today.

This wonderful company definitely deserves your attention.

Slow Compounding

This investment case was made by my friend Alexander from Slow Compounding.

He was very kind to share it with us.

You can check out his work here:

Slow Compounding

HEICO - General Information

👔 Company name: HEICO Corporation
✍️ ISIN: US4228061093
🔎 Ticker: HEI
📚 Type: Serial Acquirer
📈 Stock Price: $ 361.7
💵 Market cap: $ 50.6 billion
📊 Average daily volume: $ 244.8 million

The full investment case is very extensive (196 pages).

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. Market Leader

HEICO builds parts for planes. Not just any parts, but parts approved by the FAA. This is the U.S. authority that decides what's safe to fly.

2. Mega Serial Acquirer

HEICO has successfully completed more than 112 acquisitions since 1990.

3. Strong Compounder

HEICO has consistently compounded shareholder value over the long term.

Conclusion investment case

Let’s now summarize the full investment case for you.

HEICO is one of the best compounding businesses in the aerospace industry.

The company designs and manufactures replacement aircraft parts and specialized electronic components.

It operates a capital-light business with predictable recurring demand.

Every time an aircraft flies, parts wear out and eventually need to be replaced.

This makes HEICO a tollbooth on the global aviation industry.

The business benefits from:

• FAA-approved products that are difficult to replicate

• A decades-long reputation for quality and reliability

• High switching costs and long customer relationships

HEICO also has an excellent acquisition strategy.

They have successfully completed over 112 acquisitions while allowing each business to operate independently.

Today, their product portfolio has grown to over 20,000 approved replacement parts.

While the opportunities are attractive, there are also risks.

• Airlines may be restricted from using PMA parts under certain contracts

• Existing players continue to defend their aftermarket business

• Aviation demand can weaken during recessions or global disruptions

Despite these challenges, management continues to invest for the long term by expanding its product portfolio and acquiring high-quality businesses.

Onepager

Here are the basics of HEICO (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 HEICO gets a Total Quality Score of 7.8/10.

Full Investment Case

You can download the full investment case here:

Investment case HEICO

Are we buying?

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

Read more

I have a question for you…

… What if you had to buy 10 stocks, but you couldn’t sell any of them over the next 10 years?

It’s such a great thought exercise everyone should do once in a while.

In the past, Pieter already made a list with 10 stocks to own forever. You can find it here.

Today, TJ is doing the same.

Let’s dive in right away.

The Community

The Compounding Quality community is an amazing place.

Thousands of investors gather every single day to discuss stock and investment ideas.

Recently, Alan asked this question:

It’s a very interesting exercise.

Because with this structure in place…

You won’t be focused on making the most money.
You will be focused on avoiding big mistakes.

It’s all about following Warren Buffett’s most famous rule:

Now let me show you the 10 companies I would buy and ignore for 20 years!

10. W.W. Grainger ($GWW)

How does the company make money?

Grainger sells maintenance, repair, and operating (MRO) supplies. They sell everything from safety goggles to industrial motors.

Their products are offered to millions of businesses and institutions globally.

Why will it still be relevant 20 years from now?

• Their huge size and wide distribution network keep costs low. They also carry the largest selection of products, making them a one-stop shop for complex operations.

• Grainger is built deeply into B2B supply chains and corporate facility maintenance.

• Physical businesses will always need tools, spare parts, and safety equipment to keep their facilities running.

9. Sherwin-Williams ($SHW)

How does the company make money?

Sherwin-Williams manufactures and distributes paint, coatings, and related supplies.

They do this largely through their massive, localized network of company-owned stores tailored directly to professional contractors.

Why will it still be relevant 20 years from now?

• Paint and protective coatings will always be needed to maintain the world’s infrastructure and housing.

• Like Grainger, their distribution network is nearly impossible for new competitors to copy.

• Time is money for professional painters and contractors, and one of Sherwin-Williams’ 5,400 stores is always nearby. This keeps pros very loyal to the company’s products.

8. Cintas ($CTS)

How does the company make money?

Cintas makes money by renting and cleaning corporate uniforms and floor mats.

Furthermore, they are restocking restroom and first-aid supplies for businesses.

Why will it still be relevant 20 years from now?

• This is another business with huge local scale. Cintas runs more than 12,000 routes.

• Once a company becomes a customer, it rarely leaves. Cintas makes life easy for facility managers, and its size keeps costs low.

• As long as workplaces exist, they’ll need clean uniforms, safety gear, and restroom and cleaning supplies.

7. Rollins ($ROL)

How does the company make money?

Rollins (the parent company of Orkin) provides pest control services to residential and commercial customers.

They do this through a recurring subscription model.

Why will it still be relevant 20 years from now?

• Pests like termites, rodents, and insects aren’t going away. They need treatment again and again.

• This business holds up in a recession. Homeowners and companies cut almost everything else before they cancel pest control.

• The industry is still split among many small players. Rollins keeps buying them up, and has decades of growth ahead.

6. S&P Global ($SPGI)

How does the company make money?

S&P Global provides credit ratings, financial benchmarks (such as the S&P 500 index), and data analytics to the global capital markets.

Why will it still be relevant 20 years from now?

• The company is one of just a few big players that dominate the world market.

• Companies that borrow money need credit ratings. The global financial system can’t work without them.

• As long as capital markets exist, S&P Global will take a cut of financial data and transactions.

5. Mastercard ($MA)

How does the company make money?

Mastercard operates the world’s largest digital payment networks.

They earn a tiny fraction of a cent (and a percentage of the transaction) every time a card is swiped, inserted, or tapped globally.

Why will it still be relevant in 20 years from now?

• Mastercard’s network feeds itself. Merchants accept it because shoppers use it, and shoppers use it because merchants accept it.

• Mastercard takes no credit risk. It just runs the toll road that global payments flow through.

• The world keeps moving away from cash, and that pushes more and more payments onto Mastercard’s network.

4. Brookfield Corporation ($BN)

How does the company make money?

Brookfield is an alternative asset manager that owns and operates massive, cash-generating real assets across the globe.

This includes toll roads, hydroelectric dams, and premier real estate.

Why will it still be relevant 20 years from now?

• They own physical assets the global economy depends on, and these can’t be replaced.

• Their revenue often comes from contracts that last 20 to 50 years and rise with inflation.

• The management team is excellent at putting money to work. They buy troubled assets, fix them up, and reinvest the proceeds.

Now let’s dive in the top 3.

Read more

His hedge fund TCI made almost $20 billion (!) last year.

Let’s teach you some key lessons from this amazing investor.

Subscribe now

Who is Chris Hohn?

People call Chris Hohn ‘The Tollkeeper Investor’.

Why?

He only invests in businesses that control essential pieces of the economy.

Think about crucial infrastructure , airports, railroads, …

Chris Hohn was born in 1966 in England to a working-class family. His mother was a secretary and his father was a car mechanic.

He studied accounting at the University of Southampton, then earned an MBA from Harvard Business School.

An interesting story?

In his third year at a New York hedge fund, Chris was awarded a bonus check of $10 million.

Most people would think they are set for life.

But Chris didn’t.

He immediately set up a foundation and put the money into it.

He said “I didn’t want it… This isn’t really something I should have.”

In 2003, Chris founded The Children’s Investment Fund.
It’s better known under the name TCI.

As the name suggests, the fund donates a portion of its profits to charities for children.

To date, the Children’s Investment Fund Foundation (CIFF) has donated over $2 billion to children’s causes, primarily in developing countries.

In 2025 alone, the hedge fund TCI gave $797 million to charity.

This kind of purpose-driven approach is rare in the hedge fund world.

In 2014, Hohn received a knighthood in recognition of his charitable work.

Investment Philosophy

The Chris Hohn approach can be summarized as follows:

1. Manage risks first, returns second: Don’t lose money

2. Invest in tollkeeper businesses: Companies that control essential infrastructure

3. Buy companies with high barriers to entry: Look for stocks with multiple moats

4. Make concentrated bets: Only invest in your best ideas

5. Hold for the long term: Chris Hohn keeps every stock for 8 years on average

1. Manage risks first, returns second

Most investors ask: “How much money can I make?”

Chris Hohn asks: “How much can I lose?”

That’s why Hohn avoids complicated businesses he cannot understand.

He once told the CEO of Credit Suisse that he didn’t understand the bank’s multi-trillion dollar balance sheet.

When he asked the CEO to explain it, the CEO allegedly replied: “I don’t either.”

Chris sold all bank stocks shortly after.

That’s why he famously calls TCI a stay rich fund, not a get rich fund.

2. Invest in tollkeeper businesses

Chris only invests in tollkeeper businesses.

These companies have powerful characteristics:

• High barriers to entry

• Structural pricing power

• Predictable cash flows

Think of it this way:

• Whether people drive electric cars or gas cars, they still need roads

• Similarly, whether they use Visa or Mastercard, the payment network takes a cut

Another example? Moody’s.

This company has grown revenue by over 8% per year for over 100 years.

3. Buy companies with high barriers to entry

One competitive advantage isn’t enough for Chris.

For every company he owns, he wants five or six overlapping barriers.

1. Intellectual property

2. Strong brands

3. Hard assets

4. Long-term contracts

5. Network effects

6. Regulatory switching costs

A good example is GE Aerospace

This company makes jet engines with massive Intellectual Property.

They enjoy 30-year service contracts, regulatory approvals, and an installed base that is nearly impossible to replace.

4. Make concentrated bets

While most fund managers hold 50-100 stocks, Chris Hohn holds only 10-15 stocks.

His logic is simple:

His top 5 positions usually make up over 80% of his portfolio.

5. Hold for the long term

The average investor holds a stock for less than one year.

Chris Hohn holds stocks for 8 years on average.
Some companies are in his portfolio for over 13 years.

He believes “good companies stay good and bad companies stay bad.”

Once he finds a great business, he rarely sells.

Performance

Chris Hohn is doing something at TCI that almost no one can replicate.

Here are the numbers:

• 2025: $18.9 billion in profit. The largest single-year gain in the entire history of hedge funds.

• Since 2003: $70 billion earned for his investors.

• Long term: 18%+ CAGR since 2003. The S&P 500 returned 10% per year.

Chris Hohn’s Portfolio

Now let’s take a look at Chris Hohn’s portfolio.

Please note that only the US positions are included here.

Chris Hohn also has significant positions in Safran and Airbus. Both companies are active in the aerospace and defense sector.

5. S&P Global ($SPGI) - Weight of 10.3%

Why Chris Hohn likes S&P Global?

S&P Global is part of a oligopoly with Moody’s and Fitch in credit ratings.

When companies issue bonds, they must get a rating from at least 2 of these companies:

• S&P Global

• Moody’s

• Fitch

This is a classic tollkeeper business with incredible pricing power.

The ratings business requires minimal capital, generates massive free cash flow, and has high renewal rates.

Chris says:

4. Moody’s Corporation ($MCO) - Weight of 12.0%

Why Chris Hohn likes Moody’s?

Warren Buffett called Moody’s one of his best investments.

Chris Hohn agrees.

Moody’s has grown its revenue at roughly 10% annually for over 100 years.

Why? Because the business model is nearly impossible to disrupt.

The regulatory system requires credit ratings.

Chris has held Moody’s for over a decade, letting the magic of compounding do the work for him.

3. Microsoft Corporation ($MSFT) - Weight of 16.3%

Why Chris Hohn likes Microsoft?

Microsoft is the tollkeeper of the digital age.

The business has multiple overlapping moats:

• Network effects: Office 365 becomes more valuable as more people use it

• Switching costs: Companies cannot easily migrate away from Microsoft ecosystems

• Scale advantages: Azure competes effectively with Amazon AWS due to massive infrastructure

• Recurring revenue: Subscription models create predictable, growing cash flows

Whether businesses use cloud services, productivity software, or operating systems, Microsoft is often the unavoidable choice.

2. Visa Inc ($V) - Weight of 18.2%

Why Chris Hohn likes Visa?

Every time you swipe a card, Visa takes a cut. They don’t take credit risk, they just own the network.

The business has:

• Massive network effects: Merchants need Visa because consumers have Visa cards. Consumers use Visa because all merchants accept it.

• Zero marginal costs: Adding one more transaction costs almost nothing.

• Pricing power: They can raise their fees above inflation)

Chris believes payment networks are essential infrastructure for the modern economy.

You can read a Not So Deep Dive here.

1. GE Aerospace ($GE): Weight of 27.1%

Why Chris Hohn likes GE Aerospace?

GE Aerospace is Hohn’s largest position. It accounts for over 25% of his entire portfolio.

In 2025 alone, this investment made around $10 billion.

Why is he so confident?

• Multiple moats: Intellectual Property, regulatory approvals, 30-year service contracts, a large installed base, …

• Oligopolistic market: Only GE, Pratt & Whitney, and Rolls-Royce make large jet engines

• Recurring revenue: Engines need maintenance for decades

• Pricing power: Airplane manufacturers cannot switch engine suppliers easily

Chris Hohn met with GE’s CEO and CFO personally.

He believes the company is taking market share because their engines are more reliable.

The stock rose 85% in 2025, making it the biggest driver of Hohn’s record-breaking year.

Conclusion

Chris Hohn is a master at finding tollkeeper businesses with multiple moats.

Think about companies like

• Visa

• Moody’s

• GE Aerospace

These companies control essential infrastructure with a lot of pricing power.

At Compounding Quality, we try to do the same thing.

We look for companies with:

• High barriers to entry

• Predictable cash flows

• Long runways for growth

Everything in life compounds
Pieter (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.

It’s time for another Portfolio Update today.

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

Let’s dive in right away.

Mr. Market is in full speculative mode

We’re in very strange times right now.

No matter how you measure it, the market is very expensive.

Momentum is incredibly strong right now.

The gap between momentum stocks and low-volatility stocks has never been wider.

There’s also a lot of speculation in the market. Expectations are very high.

Analysts expect that the earnings of S&P500 will compound 24% annually for five years.

That’s double the historical norm and completely unrealistic.

At the same time, Mr. Market is completely ignoring quality stocks.

Here’s the spread between quality and momentum:

There are a lot of Quality Companies trading at decade low valuation levels today.

Think about companies like Mastercard, S&P Global, Novo Nordisk, …

Three types of businesses

This is a good moment to think about what kinds of businesses we want to own.

Back in 2007, Warren Buffett described three types of businesses in his annual letter:

• The good

• The great

• The gruesome

1. The good

Here’s what good companies do:

• Provide a lot of value to their customers

• Have a competitive advantage

Why they are not great businesses?

They need to reinvest a lot of their earnings just to grow.

Buffett uses FlightSafety (flight simulator training) as an example.

The business had a clear moat, but to grow, it had to constantly spend millions on new simulators.

These businesses work on a ‘pay more to earn more’ model.

2. The great

Great companies have the following characteristics:

• A strong moat

• Excellent returns on capital

• The ability to grow earnings without needing a lot of capital

An example? See’s Candies.

When Berkshire bought See's in 1972, the business needed just $8 million in capital to earn around $5 million.

Decades later, it was earning $82 million while needing only $40 million to run.

Because growth didn't require big spending on equipment or inventory, nearly all the cash could flow back to Berkshire to buy other great businesses.

A great business is like a savings account paying an extraordinarily high interest rate. One that climbs higher every year.

3. The gruesome

These businesses:

• Grow quickly

• Need a lot of capital

• Earn little to no money

Airlines are the textbook example.

They don’t have moats.

They require huge amounts of capital.

And there’s constant competition, usually on price.

Only the best is good enough

Here’s what’s happening in today’s market:

• The market is expensive

• Has unsustainable earnings growth expectations

• Is full of good and even gruesome businesses that are priced for perfection

That’s a dangerous recipe if you ask me.

Which is why we’re going to take the opportunity to focus even more on buying the very best businesses in the world.

Only the truly great businesses are good enough.

And today, it’s time to add to 3 companies.

Let’s dive into them right away.

Read more

But you know what’s even better? Finding a small company with a wide moat.

Let’s look at how you can do this via ETF investing.

Subscribe now

Moats Matter

Capitalism is brutal.

When a company starts making a lot of money, it usually attracts competition.

In most cases, it means margins and profits go down for everyone.

That’s called reversion to the mean.

But sometimes… This is not the case.

Reversion to the mean doesn’t take place when a company has a durable competitive advantage (moat).

A moat puts a company in a superior business position.

This allows the business to maintain and increase its profit margin and market share.

It’s the most important thing if you’re going to be a long-term investor.

Morningstar rates companies based on their economic moat.

There are 3 categories:

• Wide moat: A durable competitive advantage expected to last 20 years or more

• Narrow moat: A competitive advantage expected to last 10–20 years

• No moat: Either no advantage or one that will be gone quickly

The wider the moat, the better.

Moat Sources

In general, there are 5 different moat sources:

1. Switching costs

   • What? It’s hard for a customer to switch to a competitor

   • Example? FICO scores. Banks have built their automated loan approval systems around them, and switching to a competitor means massive operational risk for no real advantage

2. Intangible assets

   • What? Brands, patents, or regulatory licenses that allow the company to charge more than competitors

   • Example? Hermès. A competitor can make a similar bag, but they’ll never have the prestige that allows Hermès to consistently raise prices without losing demand.

3. Network effects

   • What? As the business gets more customers, it becomes more valuable to everyone involved.

   • Example? Visa is a classic example. Consumers use Visa because every merchant accepts it. Merchants accept Visa because every consumer carries it.

4. Cost advantages

   • What? Allow a business to produce goods or deliver services at a lower cost than everyone else.

   • Example? Costco buys in bulk, and passes the cost savings to customers, which makes the customers more loyal, and drives higher volumes, which allows Costco to lower prices even more.

5. Efficient scale

   • What? Happens when a market is too small for it to make sense for competitors to enter.

   • Example? Railroads like Union Pacific have this kind of moat. Building a new coast-to-coast rail network would require hundreds of billions of dollars in land rights and infrastructure, only to split an already mature market.

Moats Outperform

I hope you are convinced by now that companies with a wide moat outperform.

But does a moat really matter for an investor like you?

The answer is very clearly yes.

Since 2008, the Morningstar Wide Moat Index has beaten the US Market by 4% a year.

Size Matters

Another thing that makes a difference in investing?

Size.

Over time, smaller companies tend to outperform large ones.

The Size Problem

At Compounding Quality we have a serious size problem.

But don’t get me wrong… It’s not what you think it is.

The larger a company gets, the harder it is to grow.

Let’s look at a hypothetical example.

• Company A:

  • Generates $50 million in revenue.

  • To grow 20%, it needs to find $10 million in new sales.

  • That could be just a few new enterprise contracts or expanding into one new state.

• Company B:

  • Generates $400 billion in revenue (similar to Apple).

  • To grow 20%, it needs to find $80 billion in new sales.

  • That’s a huge challenge. iPads and Macs combined generated $62 billion in revenue last year. Apple would have to invent an entirely new category bigger than both to grow by 20%.

Warren Buffett has talked about size being a disadvantage for decades.

In 1995 he said:

Berkshire has nearly quadrupled its revenue in the past 20 years.

But the revenue growth rate is slowing down:

To summarize:

• Companies with a wide moat outperform on average by 4% per year

• Small companies outperform the market by 3% per year

Wouldn’t it be interesting to buy an ETF that has both characteristics?

The good news is that you can!

⭐ ETF of the Month (Spotlight)

VanEck Morningstar SMID Moat ETF (SMOT)

Key Information

• Name: VanEck Morningstar SMID Moat ETF

• Ticker: SMOT

• ISIN: US92189H7301

• Total Expense Ratio: 0.49%

• Physical/Synthetic ETF: Physical

What?

The ETF invests in companies with 3 characteristics:

1. Strong small and medium-sized businesses

2. Wide competitive advantage

3. Selling at a discount

But how does this work in practice?

The ETF starts from the Morningstar US Small-Mid Cap Index.

Within this index, it only keeps companies with a “Wide” or “Narrow” economic moat.

Then it checks two things:

1. Is the stock performing well (drop the ones with bad momentum)?

2. How cheap is the company?

Finally, the ETF buys the best-priced companies (115 in total).

Why?

We already know that both smaller companies and companies with a moat tend to outperform over time.

But this strategy could be particularly interesting right now.

Today, smaller companies look very attractively valued compared to large caps:

On top of that, small companies are way less covered than large ones.

This offers opportunities for rational investors.

Sector Split

Here’s the sector breakdown of the ETF.

The three largest sectors are Information Technology (18.2%), Health Care (18.1%) and Industrials (15.8%).

Top Holdings

Here are the top 10 holdings of SMOT:

ETF Portfolio Update: June 2026

Now let’s dive in Our ETF Portfolio Update.

Our 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

It’s #QualityTuesday!

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

Let’s talk about 5 interesting podcast episodes today.

1️⃣ The cheapest since 1999

I recently joined Garrett Baldwin on his podcast The Money Printer.

We discuss why some amazing companies are trading at very cheap valuation levels today.

Here’s what you’ll learn:

• Why today is an amazing opportunity to buy quality stocks

• Why Free Cash Flow is the most important thing in the world

• The most important metrics to look at as an investor

• The AI-risk

• The best opportunities in the market right now

You can watch the full podcast here:

2️⃣ What is Quality Investing?

You want to learn more about the philosophy of Compounding Quality?

This webinar is exactly what you need:

The essence of quality investing

3️⃣ The Compounding Quality Story

One of the best things about the Berkshire Hathaway meeting in Omaha?

The opportunity to meet amazing people.

That’s exactly how this podcast came to life.

For the first time, I shared the full story behind Compounding Quality.

This topic is very special to me and I would highly recommend you to listen to it.

You can watch the full conversation here.

4️⃣ Investing in Uncertain Markets

You want to find a simple framework to invest successfully?

Watch this conversation I had with Adam Taggart.

We covered five key ideas:

• Why controlling your emotions is critical to long-term success

• How to identify high-quality businesses worth owning for years

• Why great capital allocation is the CEO’s most valuable skill

• Why similar companies trade at very different valuations across markets

• How to approach dollar-cost averaging more effectively

You can watch our full conversation here.

5️⃣ Stocks to own forever

I sat down with Emmett Savage on the Stock Club podcast to talk about what I look for in a business.

A few things we got into:

• Why a strong competitive moat builds lasting value

• How real pricing power sets great companies apart

• Why reverse DCFs are useful for seeing what the market expects

• Why you should let your winners run

• How focused, specialized businesses can beat the big players

If you like finding companies you can hold for years, this one’s worth a listen.

Watch it here.

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.

Today, you will receive a full investment case of 50 (!) pages about KKR

This is a wonderful company that definitely deserves your attention.

Happy reading!

KKR & Co - General Information

• 👔 Company name: KKR & Co. Inc.

• ✍️ ISIN: US48251W1045

• 🔎 Ticker: KKR

• 📚 Type: Owner-Operator Stock

• 📈 Stock Price: $97

• 💵 Market cap: $87.0 billion

• 📊 Average daily volume: $595.0 million

Onepager

Here are the basics of KKR (click on the picture to expand)

Three main takeaways

Here are the 3 important takeaways:

🏦 KKR is one of the largest asset managers in the world
♾️ Thanks to its insurance activities, KKR enjoys “permanent capital”
🏆 Excellent track record

🏦 One of the largest asset managers in the world

KKR is one of the world's largest alternative asset managers:

♾️ Permanent Capital Advantage

KKR has $219 billion in permanent capital through Global Atlantic.

Permanent capital is the money from insurance premiums that KKR can invest for decades before it needs to be paid out as claims.

This gives them flexibility to pursue opportunities whenever they arise.

🏆 Excellent Track record

KKR has an excellent track record.

The stock is up +870% (!) since 2010.

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 KKR gets a Total Quality Score of 8.3/10.

Full Investment Case

We wrote a 50-page deep dive about KKR.

You can download it here:

Investment case KKR

Conclusion investment case

You don’t want to read the entire investment case?

You can just read the conclusion instead.

KKR started as a private equity firm in the 1970s.

Today it manages $744 billion across three businesses:

1. Asset Management: Earns fee income from managing money

2. Insurance (through Global Atlantic): Takes in premiums and invests them

3. Strategic Holdings: Compounds value through their investments and dividends

The three businesses work together supporting the businesses as a whole.

Global Atlantic brings in premiums that need to be invested.

KKR invests that capital into private credit, infrastructure, and real assets.

This means KKR always has capital to deploy, unlike most competitors who raise fixed ten-year funds and return the money. We call this Permanent capital.

At $744 billion in AUM, KKR can do deals that most competitors cannot.

They have been doing this for nearly 50 years, which is why CEOs and pension funds choose KKR over newer entrants.

The markets KKR operates in are growing fast.

Alternative assets, private credit, and insurance are all expanding, and banks pulling back from direct lending after 2008 only accelerated that shift.

KKR was positioned to fill that gap and has been doing so ever since.

The business is still in growth mode.

Revenue, fee earnings, and net income have all compounded at strong double digit rates over the past five years.

On top of this, KKR raised nearly twice as much capital in 2025 as it did in 2023.

The balance sheet is stronger than it looks.

The headline debt figure is mostly non-recourse debt sitting inside separate funds, meaning lenders have no claim on KKR itself.

Direct corporate debt is manageable, cash is healthy, and book value has compounded at a strong rate since 2015.

But the most important risk?

Stock-based compensation

This is very high relative to their net income. But unfortunately this is an industry wide practice.

The leadership is experienced and has skin in the game. Founders Kravis and Roberts are still involved.

Co-CEOs Bae and Nuttall have been at the firm for 30 years each. Insiders own 30% of the company, which is far above the industry norm.

The growth targets are clear. Management wants to double earnings in five years.

The retail K-Series funds more than doubled in AUM in 2025 alone, opening up an entirely new pool of individual investor capital.

The Arctos acquisition adds sports investing and brings KKR closer to $1 trillion in AUM.

On valuation, the stock trades well below its own historical range and below every major peer.

A sum-of-the-parts analysis puts fair value at $133 per share which is significantly above its current market price.

But the real question is…

Are we buying it?

The answer is…

Read more

It was the biggest IPO in history. All eyes were on it.

But while the market chases the hype, we’re focused on something different: great companies that quietly create more value year after year.

Let’s dive into our Buy-Hold-Sell list today.

Mr. Market is a manic-depressive.

SpaceX went public at an IPO price of $135 per share and debuted on the stock market at $150 per share.

Today SpaceX is trading at $191 per share.

This means Mr. Market values SpaceX at $2.5 trillion (!)

This is even higher than the IPO valuation of $1.75 trillion, almost a trillion dollar market cap gain in less than a week (!)

Here are the facts:

• Its the largest IPO ever

• The sixth-largest company in the US, above Tesla

• More valuable than companies like JP Morgan, Visa, and Walmart

While that looks incredible, let’s look deeper for a moment.

At a valuation level of $1.75 trillion, SpaceX trades at 90x (!) its revenue.

• That is higher than Palantir (75x revenue)

• Higher than Nvidia (20x)

• Higher than Tesla (16x)

Investment banks called it the most exciting IPO in history.

No wonder they say that.

They are making over $500 million (!) just in fees from this IPO.

But this isn't the first time we've seen something this crazy.

Let’s go back to 1999.

Do you remember Pets.com?

Here’s Pets.com in a nutshell:

• Pets.com was an online retailer during the dot-com bubble

• They sold pet food, pet toys (they heavily advertised puppet mascot),..

• The online boom was supposed to increase its revenue drastically

• Pets.com raised $82.5 million for its IPO in 2000

• The stock peaked at $14

• Nine months later it traded at $0.19, and the company filed for bankruptcy

SpaceX is not exactly like Pets.com.

It brings together some of the world's most powerful companies:

• SpaceX (a rocket company)

• Starlink (satellite internet service company)

• X and xAI (Social Media company and AI LLM company)

But here’s the thing.

SpaceX is still loss-making.

In 2025 SpaceX generated $18.7 billion in revenue and made a loss of $4.9 billion.

The AI side is even more aggressive.

xAI burned through $7.7 billion in just the first three months of 2026, posting a $2.5 billion operating loss.

Here’s the quick valuation math on SpaceX:

• To justify its price at a more reasonable 20× sales multiple, SpaceX would need to grow revenue to at least $88 billion.

• That’s almost 5× its current revenue.

• Even at a fast 30% growth rate every year, that milestone is still 6 years away.

• And to justify the price on profits instead, at a 35× P/E, SpaceX would need around $50 billion in net profit.

Even if we take the most optimistic scenario, SpaceX would need at least half a decade to justify it’s current valuation level.

And this is under the assumption that nothing goes wrong.

Morningstar thinks SpaceX is worth just $780 billion.

That’s less than 50% of the current market cap:

Even in peer comparison terms, SpaceX’s IPO valuation was on Elon Musk’s hype.

In general, you should stay away from IPOs.

IPO… It’s Probably Overpriced.

Just look at these past IPOs:

Quality is Underperforming

While SpaceX is being valued at 90x revenue, quality stocks are struggling.

They are trading at some of their cheapest valuation levels ever.

As a result, the setup looks great for future outperformance.

The market is acting more and more like a casino.
Investors look more like gamblers as a result.

The most volatile stocks are hitting all-time highs compared to the index, while the least volatile ones are at all-time lows.

As Warren Buffett said:

This trend can’t continue forever.

What’s going on today reminds me of the Dot.com bubble.

Newspapers were asking themselves whether Warren Buffett lost his magic touch:

Right now, we need to be extra careful about which stocks we buy.

History doesn’t repeat itself. But it often rhymes.

In the late 1990s, everyone was piling into tech stocks.

Everyone except Warren Buffett.

He refused to join in, even though it looked like he was running behind and missing out.

And the numbers were brutal. Between mid-1998 and early 2000, the Nasdaq surged 145%. Berkshire Hathaway? It fell 44%.

That’s a massive underperformance.

The press smelled blood. Barron’s even ran a cover story: “What’s Wrong, Warren?”

You can guess what happened next.

The bubble burst.

Between 2000 and 2002, the S&P 500 lost almost half its value.

And Buffett? His Berkshire Hathaway gained 65% (!) over that exact same period.

The lesson? Patience feels painful. But it pays off.

In times like today, we need to ask ourselves 4 simple question about the companies we own:

• Are valuations reasonable?

• Has anything structurally changed?

• Do the fundamentals remain strong?

• Do our companies still have durable moats?

As long as the answers to those questions is ‘yes’, the right thing to do is usually nothing.

We feel like we’re very well positioned right now.

Just look at the fundamentals of Our Portfolio:

We own better companies that are cheaper than the index.

Update Buy-Hold-Sell List: June 2026

Let’s now update our Buy-Hold-Sell List.

Worst performers

Here are the 10 worst performers on our watchlist so far this year:

Best performers

The 10 best performers look as follows:

Changes to the Buy-Hold-Sell list

Now let’s look into the changes on our watchlist.

Four companies went from Hold to Buy:

• Medpace Holdings ($MEDP): Global clinical research organization

• Microsoft ($MSFT): Global technology holding company

• TransDigm Group ($TDG): Aerospace components company

• Berkshire Hathaway ($BRK): Diversified holding company

One company went from Buy to Hold:

• Alphabet ($GOOGL): Technology and internet services company

One company went from Sell to Hold:

• Hermès ($RMS): Luxury goods company

One company went from Hold to Sell:

• Judges Scientific ($JDG): Scientific instruments company

  • We sold Judges Scientific because we see better opportunities elsewhere

Currently there are 53 stocks on ‘Buy’.

This number has never been higher.

You can download the entire Buy-Hold-Sell List here:

Read more

Let me ask you a question.

What’s the best way to compound wealth predictably?

We will start with the popular opinion in today’s market.

18-year-old TikTok Influencers say: “Quality investing is dead.”

They tell you the advice in Graham’s Intelligent Investor is outdated

And they confidently suggest, “If you want to get rich, just follow the trend.”

Right?

After all, high-quality stocks are trading at all-time lows.

Whereas low-quality stocks are trading at very lofty premiums.

Indeed, these are challenging times for quality investors.

It’s only natural to worry about your investments.

However, before you make any drastic decisions, please hear me out.

You may not know it yet.

But the low valuations in quality stocks are a big opportunity for rational investors.

Especially if you know how to take advantage of this.

Most investors are chasing momentum stocks right now.

They’re buying shares in companies they know nothing about.

They’ll eventually have regrets. But I don’t want that for you.

That’s why I’m writing this exclusive update.

I’m going to share a mental model for going through times like this.

You see, I was in Omaha for the 2026 Berkshire AGM.

This is the fourth year in a row that I’ve gone.

It’s like a yearly pilgrimage.

During the meeting, Warren Buffett said something you may agree with.

This headline summarizes it perfectly:

The keyword here is GAMBLING.

Speculative behavior is now worse than ever before.

For most investors, business fundamentals don’t matter anymore.

Just look at the SpaceX IPO.

Herd instinct tells you to focus on the short-term movement of stock prices.

It encourages you to ignore dangerous risk factors in a company’s annual report.

And it makes you think there’s nothing wrong with embracing the greater fool theory.

Who cares if a company can’t pay off its debt?

Just follow the trend and buy if the stock is going up and up.

This is the gambling trap Warren Buffett warned us about.

In times like this, stock prices disconnect from business fundamentals.

That’s why you see shares of mediocre companies hitting new highs every month.

You could easily do what everyone else is doing if it pleases you.

However, if your goal is to significantly outperform the market in the long run…

Here’s something to consider:

High-quality stocks might be having a hard time right now.

But in the long run?

They significantly outperform the market:

A good example is Berkshire Hathaway.

The company invests in established (but undervalued) businesses.

Just like we do at Compounding Quality.

Since 1962, Berkshire has returned over 5 million percent to investors.

Let that sink in.

5,000,000%.

That’s a compounded annual return of nearly 20%.

This is around double what you get from the S&P 500 Index.

In fact, looking at the cumulative returns over the last six decades…

Can you get similar returns chasing meme stocks?

Let’s make the math more specific.

Suppose you invested $10,000 in 1962.

In that case, you’d have $6 million today if you invested in the S&P 500.

But what if you invested in Berkshire Hathaway instead?

In that case, you’d have $3.6 billion!

The difference is ridiculous.

It is due to the power of compounding quality over long periods.

However…

As good as Berkshire’s returns look now, it wasn’t an easy ride for investors.

The conglomerate had some years where it underperformed the market.

During those periods, it was tough being a quality investor. Just like today.

You may remember what happened in 1999.

It was the peak of the dotcom bubble.

Berkshire refused to buy mediocre businesses at unreasonable prices.

People were saying Buffett had lost his magic touch.

So they sold their Berkshire shares, and the stock suffered.

But if you invested $10,000 in Berkshire in 1999...

Your investment would be worth around $400,000 today.

A 40-bagger (!)

You would have outperformed the S&P 500 2x!

It’s what you can expect from quality stocks backed by strong fundamentals.

Why great companies underperform in the short term

Great companies often underperform in the short term for reasons unrelated to their fundamentals.

Smart management teams prefer waiting for the right opportunities instead of making average investments just to show growth.

They focus on long-term projects, but many investors lack the patience and instead chase trendy, fast-moving stocks

Sometimes, market sentiment also shifts toward riskier sectors, causing quality businesses to temporarily fall out of favor.

So short-term underperformance is often more about investor behavior than business fundamentals.

But it goes even deeper.

How Quality performs during downturns

Pick any financial crisis that comes to mind:

• The dotcom crash

• The global financial crisis

• The COVID meltdown

How did quality stocks perform?

They fell less than the broader market.

And they recovered faster.

That’s exactly what makes the strategy so powerful.

Here’s a study you may find interesting:

An investor compared quality stocks versus momentum stocks.

You know what he learned when the market crashed?

Quality stocks recover 9x faster than other stocks.

And when they recover, they reach new highs, massively outperforming the market.

That’s why I’m so optimistic about the companies we own.

Our philosophy is very similar to Warren Buffett.

We will own our companies for a long time.

Why?

Because they meet the criteria to outperform in the long term:

• A strong moat

• High profitability

• Low capital intensity

• Great capital allocation

• High management integrity

• Attractive historical growth

• Benefiting from major economic shifts

These companies may struggle when the market is in a gambling mood.

Like today.

Many investors are paying lofty premiums for low-quality stocks.

But sooner or later, stock prices reconnect with business fundamentals.

And when this happens?

Quality stocks soar to new highs, handing you incredible returns.

Buy the best of the best at a discount

World-class companies almost never trade at a discount.

But when they do?

You should take full advantage of the opportunity.

When you don’t understand a business, a falling stock price looks like a warning.

However, when you know the business fundamentals are still intact?

You don’t panic.

Instead, you could do one of two things:

1. Hold onto your current positions.

2. Buy more.

Here’s a simple strategy you can use to your advantage.

Adding Every Month (Dollar-Cost Averaging)

Two things happen when you add to your portfolio every month:

1. If the stock market goes up, you make money

2. If it goes down, you can add to your portfolio at lower prices.

Here’s how we do it at Compounding Quality:

We add around $50,000 to our Portfolio every month.

Currently, our positions are worth $1.5 million.

And I want to keep investing for as long as I can.

How will we do if we stick to quality stocks forever?

Look at it this way.

Warren Buffett is 95 years old.

Me?

I’m 29.

Suppose I live as long as the Oracle?

That means I have 66 years left to invest.

Now, let’s use a conservative CAGR of 12%.

Assume I don’t make any additional stock purchases.

After 66 years, Our Portfolio would be worth $3.8 billion in that case.

Not bad.

But can we do better?

What if I keep adding $50,000 to our Portfolio every month?

Over the next six decades, it would be worth $17.5 billion.

That’s just ridiculous.

This is the magic of compounding at work.

Are you taking full advantage of it already?

If not, this is a good time to do so.

Why?

Because high-quality stocks are “stupidly cheap” right now.

My suggestion?

Take advantage of the low prices today.

You may have to sit through periods of volatility.

But here’s what I’ve learned in over a decade of quality investing:

Buying quality stocks at a discount sets the foundation for superior long-term returns.

Is it a popular approach?

No.

But it’s probably the safest way to compound wealth predictably.

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.

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.

Subscribe now

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