Our Watchlist
149 Stocks in our investable universe
I want to share how it all started for Compounding Quality…
… It all started with creating Our Watchlist.
The Compounding Quality Universe contains 139 High-Quality Stocks.
In other words: when valuation looks attractive we might want to buy these companies.
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 Finchat, we screened for quality stocks like this:
When you screen for these criteria, you’ll find around 300 companies.
Here are some companies that match these criteria:
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 do well in the past.
We expect that this trend to continue in the future.
Why? 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 trading at cheaper valuation levels.
Are you ready? Let’s dive into the list!
Investable Universe
Here are the 139 companies within the investable universe:
Please note that we didn’t take into account valuation metrics when creating this watchlist.
In other words: there are a lot of beautiful companies within this list which we consider as (way) too expensive at this point in time.
Think about companies like S&P Global, Heico, IDEXX Laboratories, Fortnox, Constellation Software, …
We would love to own these businesses when valuation comes down.
“Even an investment in a wonderful business can end up as a terrible investment when you pay too much.” - Warren Buffett
Different subsets
Based on the investable universe, different subsets were created which might be interesting to you.
Quality companies still run by their founder
Why does it matter whether the founder is still on board?
Because founder-led businesses outperform the market by a wide margin on average.
The main reason for this is that they have skin in the game.
Quality companies with insider ownership > 10%
Why does insider ownership matter?
Because companies with high insider ownership outperform the market by 3.6% per year on average.
Quality companies with CEO Tenure > 10 years
Why does CEO Tenure matter?
When a company has a CEO who has been at the top position for more than a decade and the track record of the company is (very) good, it’s a great indication that the CEO is doing a great job.
Just look at Watsco for example where Albert Nahmad has been the CEO for 50 (!) years.
Building the portfolio
Based on this watchlist, we started building the Portfolio in October 2023.
Here are some characteristics:
We own 13 High-Quality Companies
The Fundamentals look way better than the S&P 500
The Portfolio returned 46% since inception
> 70% of the Portfolio is invested in companies with skin in the game
A new position will be bought next week
Curious to find out more?
Become a Partner of Compounding Quality and get access to everything right away.
You now get a 20% end-of-the-year discount:
Book
Order your copy of The Art of Quality Investing here
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data