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:
Buy wonderful companies
Led by outstanding managers
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!