🥂 Our Forever Portfolio
Hi Partner 👋
I’m Pieter and welcome to a 🔒 subscriber-only edition 🔒 of Compounding Quality.
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In October last year, the Compounding Quality Portfolio was born.
We returned 30.3% versus 23.2% for the S&P 500:
Source: Interactive Brokers
The CAGR of the Portfolio looks as follows:
As you know, a 1-year performance doesn’t tell you anything.
It’s only after 5 years that we can conclude something.
The goal is to outperform the S&P 500 by 3% per year in the very long term.
But in general, I am comfortable stating that we can achieve our goal of outperforming the S&P 500 by at least 3% per year.
Why?
Just look at the Fundamentals of the companies within the Portfolio.
Fundamentals
When we compare the Fundamentals of Our Portfolio with the S&P 500, we get the following:
As you can see, the Portfolio scores better than the S&P 500 on (almost) every single metric:
Our companies have a healthier balance sheet
They operate at a lower capital intensity
They are more profitable
They managed to grow more than the index AND the outlook looks better
Our companies are slightly cheaper than the S&P500
Our companies performed phenomenally in the past
When you see this, doesn’t it make sense that our Portfolio will perform well?
For me it does. But please do your own due diligence.
Owner’s Earnings
In the long term, stock prices always follow the evolution of a company's Owner’s Earnings.
The evolution of the Owner’s Earnings for Our Portfolio looks as follows:
The Owner’s Earnings evolved from 100 in 2017 to 774 at the end of 2023.
Those figures are amazing.
When we compare the Owner’s Earnings with the evolution of the stock price we get the following:
The Owner’s Earnings and the stock price compounded at very attractive rates (40.7% and 36.0% respectively).
But please be wary.
You can’t expect these numbers to keep compounding at these rates!
Some companies we own today were still in their very early growth phase in 2017.
I (probably) wouldn’t have owned it back then because the risks were too high.
That’s why I would be very happy when the Owner’s Earnings would be able to compound by 10-15% per year in the future.
Based on my calculations, Our Companies should be able to grow their intrinsic value by 13.1% per year until 2026.
If this would be correct, the stock prices would evolve at (more or less) the same rate.
Our Portfolio
Today, we own 12 wonderful companies in which we truly believe.
Our Portfolio looks like this: