18 Comments
Sep 27, 2022Liked by Compounding Quality

Thanks a lot for this post. I wanted to contribute with my thoughts on Mips, which I know well. It has indeed a lot of quality traits: supportive industry trends, strong economics, strong relationships with helmet brands, end users who value a lot the Mips brand, and a unique position as an ingredient brand (for the same reasons there is only one Gore-Tex in jackets, there is probably only going to be one Mips in helmets)...But recently I am wondering whether the cyclicality of Mips' main end market ("Sports/Cycling" - still >90% of revenue) diminishes the quality, especially after the explosion of bicycle & helmet sales during the pandemic and as we are potentially entering a recession. Since the "Safety" vertical is still ramping up, could Mips be facing a hiatus in growth because of the combination of these two factors (Covid boom fading + weaker macro)? This is why I am still watchful at c.30x P/E. Cheaper valuation or signs of resiliency in this difficult environment is what I am monitoring at the moment.

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founding
Aug 22, 2023Liked by Compounding Quality

Hello,

thank you again for all your work.

Would you say that one year after those stocks are still undervalued? Or is it better to focus on your recent list "15 stocks you've never hear of"?

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author

Hi Axel,

I should probably go through the list again to determine whether they are undervalued.

I am currently working very hard on the launch of the 'Compounding Quality Portfolio'. There you can follow my portfolio 24/7 and all my investable assets will be invested in that portfolio.

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founding
Aug 22, 2023Liked by Compounding Quality

Eager to discover it.

Cheers

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Feb 5, 2023·edited Feb 5, 2023Liked by Compounding Quality

A nice List and difficult to Evaluate by retail Investor. I Wonder about the selective criteria and a ranking 20 is to much, 10 reasonable and 5 actionable

And thx for posting

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author

Thank you for the great suggestion, Ed!

The best is yet to come. :)

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Nov 24, 2022Liked by Compounding Quality

Great Info again, thanks CQ. Kev

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Sep 23, 2022Liked by Compounding Quality

A wonderfully inspiring read, thanks a lot :-)

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It should be legally mandated that authors revisit stock picks one year later.

At the 9 month mark, this list isn't aging all that well, especially for "high quality" picks.

If they were a collection of 'cheap longshots', then there's ample allowance for losers, so long as a couple ships really do come in and deliver overall gains.

Inspiring when published, but sobering on review.

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author

Hi Gubbeen,

I just checked the returns of an equal-weighted portfolio for these 20 names over the last year. The return would have been equal to +21.4% (!) compared to +11.1% for the MSCI World and +14.6% for the S&P500.

So I don't understand why you are saying that this list is sobering on review. The list outperformed the benchmark by a wide margin.

By definition, not every stock in this list is a winner and this will never be the case.

I always use the rule of three:

- Once every three years, you will underperform the benchmark

- One stock pick out of 3 will turn out to be a bad investment

- Once every three years, the portfolio will have a negative return

So in general I think the results of this list are very satisfactory.

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Sincerely appreciate that effort and owe you an apologetic retraction!

I was going to cop to being not at all systematic in my assessment and should have (either disclaimed or applied the same rigor in the first place). I'm not even certain I pulled up all 20 charts.

But thank-you for taking such a casual (now that I look back at it, undeservedly snarky) judgement seriously enough to soundly refute it. Full Substack marks.

I like your 'three rules of three'--as reasonable a set of goalposts as any, especially for a risk-balanced/value/quality/long-hold portfolio.

p.s. A small caveat is that I was glancing at G/L since 22 Sept, the publication date. If you the data assembled in a way that makes checking returns since then easy, I'd be curious to see if my impression was any less wrong. If you can't readily coattail off what you did, please don't go to any further lengths.

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author

Hi,

No worries at all, Gubbeen!

You forced me to take a look at this list again. It's a very good characteristic to be critical against what other people say and write. Especially since there is so much noise on Substack and in the investment world in general.

Currently I am working very hard on a 'Compounding Quality Portfolio'. It should be launched on the 1st of October this year. The goal is to outperform the S&P500 with 3-5% per year in the medium and long term and the portfolio will be focused on 3 kind of stocks:

- Owner-operators (major part of the portfolio)

- Monopolies and oligopolies

- Cannibals (stocks which are heavily buying back their own shares)

I am really looking forward to this as the portfolio will be way more trustworthy than just a list with 20 names like in this article as I will monitor the portfolio full time and will make adaptions when needed.

PS To get the exact numbers you should indeed look at the numbers since 22 Sept. Currently I am home so I don't have access to a Bloomberg Terminal to check the returns since 22 Sept. which is why I just used the returns over the past 12 months. But in general, I would say that 12 months is too short to draw conclusions. A better time period would be 3 to 5 years.

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Jun 29, 2023Liked by Compounding Quality

Cheers. I share your signal/noise assessment and admire your doing far more about it than taking drive by pot shots at others' work.

As penance: probably more labour intensive for the googlefinance() plebeian that I am, but my G/L as from Sept. 22 is 15.8%, which is just under your TTM when annualized. In fact, Google data has your TTM result slightly higher at 23.6%.

You smoked the four international small-cap ETFs I could find:

Sept 22 TTM

5.6% 1.8% WisdomTree Dynamic Currency Hdg Intl SmallCap Eqty

14.4% 8.6% Schwab Fundamental Intl Small Company Index ETF

13.1% 6.9% Avantis International Small Cap Value ETF

11.0% 5.7% Vanguard FTSE All-World ex-US Small-Cap Index ETF

Interesting that, whereas your rate of gain was slightly steeper over the 85 days between June and Sept. than over the 280 since then, every ETF suffered _losses_ in the same extended period.

Back-testing small-caps to 3 yrs begins to introduce some survivor bias, but the 18 that are that old would have returned 105% and the 13 that date back to 2018 have returned an average of 345% since then. Perhaps most impressive was the fact that the worst 5-yr performance was 42%. (XPEL was a 20x homerun.)

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author

And I am quite comfortable to say that in the long term (5 years and longer) this list will outperform the small cap ETFs as well.

When you can find quality companies with skin in the game, a wide moat, active in a secular trend and they are still quite small (in terms of market cap), you will do very well as an investor.

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Perion and Qualys are great!

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Sep 26, 2022·edited Sep 26, 2022

I like this post. If you're agree I'm going to share tomorrow in my Youtube live. Good small caps ranking.

https://www.youtube.com/channel/UCCAhlw2FBbaO485J6WhTCgA

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Thanks for sharing, but "undervalued"? :) Many are really expensive. CHEMM, MIPS....

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