How We're Going Forward
Hi Partner 👋
Over the past few weeks, we’ve been giving you an extensive Portfolio Update.
In case you missed it:
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: