Everyone wants to own the best companies in the world. But how can you find them? In this article I’ll show you how you can screen for quality stocks yourself.
And you are 100% right to say so! FCF per share is a better metric than EPS.
I used EPS because the friend who made this list used EPS. When you backtest these criteria, you see that over the past 2 decades a portfolio with companies which match these criteria outperformed the S&P500 with roughly 4% per year.
I cannot express enough how much I admire your absolute talent for teaching people about investing. Your articles continue to amaze me as they get better and better with every release. Each one is a true wealth of information, providing readers with invaluable insights and guidance. Your ability to break down complex investment concepts into easily understandable steps is truly remarkable. Your passion for teaching shines through in every word, and I feel incredibly fortunate to have you as a mentor in the world of finance.
I want you to know that when you're ready to go behind the paywall and monetize your hard work, your readers will willingly reward you for the immense value you provide. The depth of research, the clarity of explanations, and the practical insights you offer make your articles an invaluable resource for all of us. Your commitment to sharing your expertise selflessly is commendable, and I want to thank you many times for your fantastic breakdown of the process of searching for quality investments. Your dedication to educating others is truly inspiring, and I eagerly anticipate more of your insightful work in the future.
I printed most of your articles, and I put them together in a binder. They will be the mandatory reading for my son during the summer vacation. : ) I wish I found you 20 years ago.
Your newsletter certainly is one of my highlights every single week. Thank you so much for all the valuable content - I'm learning a lot and deeply appreciate your generous approach. Greetings from Munich, Germany.
If you read the 10Ks (annual reports) available in 2001 for Monster, Apple, and Amazon. Which one would you have picked? This is really difficult to imagine as we know the outcome. As someone that doesn't live in US, I only knew Apple out of the three, might've heard about Amazon.
The thing is that you only need 1 stock like this during your entire investment career to generate superior returns. It's about letting your winners run.
“If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over time if you're patient.” - Peter Lynch
Personally, I would never have invested in Amazon in 2001 and I probably won't have invested in Apple because the risk was still very high. Monster has a very predictably business model with high profit margins and high ROIC so I would pick that one.
You are right, I looked at their 2001 numbers and Monster is a straight line always generating cash. Thanks for your content!!! Sometimes you remind me of Terry Smith when looking for quality.
It looks like Stratosphere did an update and some things changed. It should be no problem to screen for the earnings growth. When you for example screen for Cash Flow from Operations > 7%, you will also be fine.
There are some companies in this list which I own. Due to my job (Fund Manager), I'll keep them for myself as of now.
But ... I am about to leave my job to focus on Compounding Quality full time. Really looking forward to launch 'The Compounding Quality Portfolio' in a few months!
This is the BEST investing email !
I read, speaking as an investment advisor for 22 yrs
Thank you very much, World System!
I feel blessed to help people like you. If you continue to be passionate about stocks and keep learning, you'll become very wealthy.
Thanks for you endorsement!
Commitment from a professional investment advisor like yourself I take personal notice!!
It feels so good to help you!
Via this newsletter, I can help people during their investment journey and focus on what's right for them.
That's a completely different game compared to Wall Street as there are a lot of commercial incentives there.
I like FCF/Share growth i/o EPS growth
And you are 100% right to say so! FCF per share is a better metric than EPS.
I used EPS because the friend who made this list used EPS. When you backtest these criteria, you see that over the past 2 decades a portfolio with companies which match these criteria outperformed the S&P500 with roughly 4% per year.
My young friend CQ,
I cannot express enough how much I admire your absolute talent for teaching people about investing. Your articles continue to amaze me as they get better and better with every release. Each one is a true wealth of information, providing readers with invaluable insights and guidance. Your ability to break down complex investment concepts into easily understandable steps is truly remarkable. Your passion for teaching shines through in every word, and I feel incredibly fortunate to have you as a mentor in the world of finance.
I want you to know that when you're ready to go behind the paywall and monetize your hard work, your readers will willingly reward you for the immense value you provide. The depth of research, the clarity of explanations, and the practical insights you offer make your articles an invaluable resource for all of us. Your commitment to sharing your expertise selflessly is commendable, and I want to thank you many times for your fantastic breakdown of the process of searching for quality investments. Your dedication to educating others is truly inspiring, and I eagerly anticipate more of your insightful work in the future.
I printed most of your articles, and I put them together in a binder. They will be the mandatory reading for my son during the summer vacation. : ) I wish I found you 20 years ago.
Have a great weekend, my friend!
If I received a dollar for every time you made me blush, I would be a millionaire by now! :)
Thank you so much, Pavel! It's very rewarding to write about investing for people like you. It's my Ikigai.
I am already looking forward to meeting you again in person. Have a lovely weekend!
And if everyone of your readers follows your advice, we will all become millionaires soon. Guaranteed!
Great, informative article! Thank you very much!!
It's an honor, Stan!
Which topics do you want to see covered in the future?
Hey just curious about which screener has all of these filters
I use Bloomberg but you can also use Stratosphere (which is free).
Good paid screeners are Uncle Stock, KoyFin and Sharepad.
Okay thanks! Really enjoyed this post, keep it up!
Nice work. Great article.
You are one of our most dedicated readers, Six Bravo!
Do not hesitate to reach out if I can do something for you.
Your newsletter certainly is one of my highlights every single week. Thank you so much for all the valuable content - I'm learning a lot and deeply appreciate your generous approach. Greetings from Munich, Germany.
It's an honor, Sebastian! If I ever can help you with something, just let me know: compoundingquality@gmail.com
Nice article, are you able to share the bloomberg screen at all?
At the bottom of the article, there is a Bloomberg Screenshot with companies which match these criteria.
Which Bloomberg Screen would you like to see exactly?
If you read the 10Ks (annual reports) available in 2001 for Monster, Apple, and Amazon. Which one would you have picked? This is really difficult to imagine as we know the outcome. As someone that doesn't live in US, I only knew Apple out of the three, might've heard about Amazon.
The thing is that you only need 1 stock like this during your entire investment career to generate superior returns. It's about letting your winners run.
“If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over time if you're patient.” - Peter Lynch
Personally, I would never have invested in Amazon in 2001 and I probably won't have invested in Apple because the risk was still very high. Monster has a very predictably business model with high profit margins and high ROIC so I would pick that one.
You are right, I looked at their 2001 numbers and Monster is a straight line always generating cash. Thanks for your content!!! Sometimes you remind me of Terry Smith when looking for quality.
Wow. This is one of the best compliments I ever received. :)
Terry Smith is one of my personal heroes!
Thank you again for this article.
When we look at Stratosphere screener, there is not those 2 things :
Earnings growth > 7%
FCF / earnings > 80%
Do they call it differently? Is EPS a synonym for earning?
Thank you again
Hi Axel,
It looks like Stratosphere did an update and some things changed. It should be no problem to screen for the earnings growth. When you for example screen for Cash Flow from Operations > 7%, you will also be fine.
Looking into the FCF Realization.
Can anyone help advise me on what filters to use on https://www.tradingview.com/stock-screener/ to get the same results. I'm struggling
It's an honor, Damia!
Are there any stocks mentioned in these lists which you own?
That's a great start already!
There are some companies in this list which I own. Due to my job (Fund Manager), I'll keep them for myself as of now.
But ... I am about to leave my job to focus on Compounding Quality full time. Really looking forward to launch 'The Compounding Quality Portfolio' in a few months!