Next Thursday, I am giving a free webinar: 🔥 Masterclass: Invest like a professional.
You can register for free here.
Hi Partner 👋
Today it’s time to add to Our Portfolio again.
We will add to 2 companies:
Company 1: Undervalued by 15% according to management
Company 2: Our Mini Berkshire Hathaway
Free Masterclass: Invest like a professional
For years I’ve written about the companies I own.
What I’ve never done is walk anyone through the process.
The actual sequence I run every business through before a single dollar goes in.
Next Thursday I’m doing exactly that, live, for one hour.
On top of that, I am going to share 4 of my favorite stocks.
You can attend for free:
A crazy statistic
The craziest statistic you’ll see today?
This one:
You could take away 99% of the returns of Warren Buffett…
And he would still have outperformed the market.
That’s the magic of compounding put to work.
We as human beings are not built to understand the magic of exponential growth.
It’s one of the most powerful things on earth.
You should invest in companies that create more and more shareholder value year after year.
A company like Berkshire.
But you have plenty more examples:
You only need one winner like this during your entire investing career to be really successful.
Here are 10 golden rules you can use:
Know what you own and why you own it. Do your homework before you buy. Buying without research is like playing poker without looking at your cards.
Understand the finances. The biggest losses come from weak balance sheets. Stick to profitable companies with healthy financials.
Use your everyday edge. You notice good businesses at work, in shops and in daily life, often before Wall Street does.
Buy quality, not hype. Skip hot stocks and the “next big thing.” Invest in great companies in boring industries with a durable competitive advantage.
Make ROIC your key metric. Return on invested capital shows how well management allocates capital. The higher, the better.
Think long term. In the short run, share prices and business results often diverge. Over time, the stock follows earnings: if profits grow 10x, the price will follow.
Let your winners run. Your downside on a stock is limited to what you invested, while your upside can be many times that.
Don’t overdiversify. Own only as many stocks as you can properly analyze and follow.
Treat market declines as opportunities. Keep some cash on the sidelines so you can buy when others panic.
Ignore macro forecasts and noise. Nobody can reliably predict interest rates, the economy or currencies.
You want even more rules?
Here are 20 golden investment rules from Peter Lynch:
Now let’s dive into the 2 Buys we are doing for Our Portfolio.
Adding to Our Portfolio
1. Buying more Fairfax Financial Holdings ($FFH)
How does the company make money?
Fairfax makes money by selling insurance and reinsurance policies. They collect premiums from clients while carefully managing risks. It then invests the money it holds before paying claims (the “float”) to earn additional returns.
Why are we buying more?
Fairfax Financial is run by one of the best capital allocators in the world: Prem Watsa.
The company has generated a 19.5% annual return to shareholders since 1985.
That means $1,000 invested in Fairfax when Prem Watsa started in 1985 would be worth well over $1.2 million today.
Out of roughly 6,000 companies, only 6 companies did better since 1985 (Berkshire stands at place 49):
You might think that a company that’s grown so much over the past 40 years wouldn’t have a lot of upside potential left.
I don’t think that’s true.
Fairfax uses the same flywheel as Berkshire Hathaway.
They invest the float from their insurance operations, use the returns from their investments to acquire new businesses and grow the capital they have to invest, keeping the flywheel growing.
But Fairfax is still much smaller than Berkshire.
It means they can invest in opportunities that Berkshire can’t because of their size, and that Fairfax probably has a lot more room to grow.
For all this potential upside, Fairfax looks cheap.
It’s a complex company, but an easy way to look at it is through EV/EBIT.
It’s currently trading below the average of the past few years.
Prem Watsa also thinks it’s cheap.
He’s been heavily buying back shares recently.
With Fairfax aiming to grow its intrinsic value by 15% per year, I think now is a very attractive time to buy more shares.
Transaction
We add $20.000 to our Fairfax position.
We enter an order for Q 13 at a limit price of CAD 2300.
2. Second buy
The second buy is only available for Partners of Compounding Quality.
The good news?
In Thursday’s webinar I’m going to share my 4 favorite stocks with you.
Company 1: A pick-and-shovel play for AI
Company 2: A company that returned 17% (!) per year for over a decade
Company 3: A mini Berkshire Hathaway
Company 4: The strongest oligopoly I have ever seen
Curious?
The webinar is 100% free.
You can register here:
Everything In Life Compounds
Team Compounding Quality
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