Compounding Quality

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Investable Universe

www.compoundingquality.net

Investable Universe

Compounding Quality
Oct 1, 2023
∙ Paid
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Investable Universe

www.compoundingquality.net
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Are you ready for the Compounding Quality Universe?

The list contains 139 companies which are considered as high quality.

In other words: when valuation looks attractive we might want to buy these stocks.

Compounding not a 'get-rich-quick' scheme, IFA warns

Creation of the watchlist

The essence of all companies we want to own is very simple:

  1. Buy wonderful companies

  2. Led by outstanding managers

  3. Trading at fair valuation levels

Via Bloomberg, we screened for quality stocks like this:

When you screen for these criteria, you’ll find around 300 companies.

The list was further trimmed down to 139 companies based on the following criteria:

  • We should be able to understand the business model

  • The business model should look attractive

  • The company should be led by great managers

  • The company should have a sustainable competitive advantage (moat)

  • Commodities, banks, and cyclical businesses are excluded

The companies that remain can all be considered as high quality.

“We buy stocks the way we buy toilet paper: high quality, on sale, and in bulk sizes.” - Allan Mecham

Outperformance

The investable universe managed to outperform the S&P 500 by a wide margin in the past.

We expect that this trend will continue in the future.

Why? Let’s take a look at this table:

As you can see, the universe has the following characteristics compared to the S&P 500:

  • Healthier balance sheet

  • Lower capital intensity

  • Better capital allocation

  • Higher profitability

  • Higher historical AND expected growth

  • Slightly lower valuation

To summarize: you invest in better companies that are trading at cheaper valuation levels.

That’s exactly why this universe managed to outperform the S&P 500 with more than 5% per year in the past.

Are you ready? Let’s dive into the list!

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