👑 Outperformance Blueprint

The fundamentals of Our Portfolio

The most important table of Compounding Quality?

The one that compares the Fundamentals of Our Portfolio with those of the S&P 500.

Let’s go over it and discuss how you can create this table yourself.

The Blueprint

Before a single brick is laid, an architect spends a lot of time refining blueprints.

They look at every detail, from the foundation to the roofline. A building could easily collapse without this preparation.

Investing is no different.

A portfolio may perform well in a rising market, but without strong fundamentals, it won’t withstand a downturn.

That’s why you should look at the Fundamentals of every company you own.

My blueprint is based on eight metrics.

The companies in Our Portfolio outperform the S&P 500 on all of them except valuation:

• Stronger balance sheet

• Lower capital intensity

• Better capital allocation

• Higher profitability

• Better growth

• Better outlook

• Similar valuation level

• Created more shareholder value

Our goal is to beat the S&P 500 by 3% per year in the long term.

We’re confident we can achieve this because our companies are fundamentally better.

Here’s what the outperformance of the Portfolio looks like today:

Let’s dive into each metric step by step.

1. Balance Sheet

“Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.” - Peter Lynch

I want to invest in companies that are in great financial shape.

It allows them to remain flexible, and they often take less risk.

We look at two ratios to determine the healthiness of a balance sheet:

• Interest Coverage

  • Indicates how easily a company can pay back the interest on its outstanding debt

  • Hurdle rate: Interest Coverage > 15x

• Net Debt / EBITDA

  • Shows you how many years it would take the company to pay down all its debt

  • Hurdle rate: Net Debt / EBITDA < 4x

Here’s what the Balance Sheet for Our Portfolio looks like: