Investable Universe

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.

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!