Why I’m Buying This Stock
Our Next Buy is a Private Equity (PE) company.
A €10,000 investment in 1995 would be worth €500,000 today!
Let’s tell you why I think this company is so interesting.
Why Private Equity?
Owning a Private Equity (PE) company in your portfolio could be very interesting. Why?
There are two main reasons:
It’s hard to get access to Private Equity as a private investor. Via a listed private equity firm, you can get access to smaller amounts of money
In the very long term, Private Equity performs even better than stocks
Investing in private equity lets you invest in companies that most people can't invest in.
These are usually private companies, not listed on the stock market.
It's a way to be part of big business deals that aren't open to everyone.
Our Next Buy is a PE company highly specialized in software and technology.
What’s also important to understand? By investing in a Private Equity firm, you optimally benefit from the power of compounding.
Let’s say:
A PE firm has $1 billion in Assets Under Management (AUM)
The unlisted equities return 10% per year on average
They collect 1% in yearly fees
In year 1, they make $10 million from fees.
By year 10, the private equity (PE) firm will manage around $2.6 billion.
That means they’ll earn about $26 million in fees every year by then.
When you combine this with a yearly extra inflow (clients investing in the funds of the company), you understand that PE firms can be very powerful compounding machines.
It’s exactly why most Private Equity firms have a very strong track record in creating shareholder value.
A Proven Wealth Builder
If you had invested in this company at its IPO in 1995, you’d be up 50x.
Over the last 10 years, the company has compounded its Owner’s Earnings at a 20.0% CAGR.
This is what great capital allocators do: They reinvest wisely, avoid stupidity, and let compounding do the heavy lifting.
Let’s find out which company I’m buying on Monday…