Hi Partner 👋
I hope you are doing well.
Recently, I did something I had never ever done in my adult life.
I took a holiday of two (!) weeks.
I spent a few days with my girlfriend in the Netherlands and Belgium, before going to Greece (Crete) for a week.
Besides having fun, this trip provided some great investment and life lessons.
Let’s share them with you today.
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The Greece Trip
During this two week period, I barely worked (maybe 1-2 hours per day).
We visited the city of Heraklion, went to Santorini and had a few lazy days at the pool.
Before taking this holiday, I was a little bit afraid:
What would happen with Compounding Quality? Would Partners become upset for me taking a holiday?
What will happen to Our Portfolio? As we were in the midst of results season?
In hindsight, I had nothing to worry about.
Partners were very understanding. Some even encouraged me to take a holiday
During the period that I was away, the Portfolio performed really well
It resulted in me making this statement in the Community:
I truly feel we are very well positioned with Our Portfolio today.
You see a clear trend nowadays:
When AI and semiconductors outperform, Our Portfolio underperforms
When AI and semiconductors underperform, Our Portfolio outperforms
I believe the market is overvaluing AI and semiconductors.
Just look at this chart:
Over the past few weeks, Our Portfolio started outperforming the market.
I think this trend will continue over the next 1-2 years.
However, please note that we make no attempt (at all) to try and time the market.
I don’t care much about market sentiment.
Why? Because I know that stock prices will follow the evolution of the intrinsic value eventually.
What you should care about?
The Free Cash Flow your portfolio is generating for you.
Here’s what the evolution looks like:
As you can see, our companies are generating more and more Free Cash Flow for us.
My personal goal? Generate $1 in Free Cash Flow per minute with Our Portfolio.
Why? You should try to find a way to make money while you sleep.
Because if you don’t, you’ll work until you die.
If we can make $1 in FCF per minute, this would mean we make the following:
$1 per minute
$60 per hour
$1.440 per day
$43.200 per month
$518.400 per year
If the companies you own generate $43,200 in Free Cash Flow every month, I think it’s fair to say you’ve achieved true financial independence.
Financial independence means being able to do what you want, whenever you want, with whoever you want.
Reaching this goal will take a while, but we will get there eventually.
Personally, I don’t share the real dollar amounts I invest in the Portfolio.
But I use exactly the same percentage weights as shown in the Portfolio Spreadsheet.
The Compounding Quality Portfolio is currently worth $1.9 million.
If my personal portfolio would be worth $950.000, I buy half the quantity of every stock shown in the spreadsheet.
If my personal portfolio would be worth $3.8 million, I buy twice the quantity of every stock shown in the spreadsheet.
The goal is to outperform the S&P 500 by 3% per year in the long term.
To achieve this, we would probably need a return of 12% per year.
The power of compounding is something beautiful.
He/she who understands it, earns it.
He/she who doesn’t, pays it.
I am about to turn 30 years old in November this year.
Let’s just say my portfolio is actually worth $1.8 million…
… This is how much we would have going forward at a 12% per year return:
In 10 years: $5.6 million
In 20 years: $17.4 million
In 30 years: $53.9 million
In 40 years: $167.5 million
In 50 years: $520.2 million
In 60 years: $1.6 billion
In 66 years (at same age as Warren Buffett’s): $5.0 billion
That’s the true power of compounding.
It’s very hard for humans to understand the power of exponential growth.
The key takeaway?
If you compound well and you live a long & healthy live you could actually become a billionaire.
And things get even better.
What if we would periodically add $50.000 per month to Our Portfolio?
In that case the situation looks as follows:
In 10 years: $17.0 million
In 20 years: $66.8 million
In 30 years: $228.7 million
In 40 years: $755.7 million
In 50 years: $2.4 billion
In 60 years: $8.1 billion
In 66 years: $26.3 billion
You could draw two key lessons from this:
Be patient and let the power of compounding do its work for you
Don’t make huge mistakes and stay in the game
You can do the calculations for your own portfolio via this spreadsheet*:
*Please note that you need to download the spreadsheet first to Excel in order for it to work.
So now you know Our Portfolio is generating a lot of Free Cash Flow for us.
What makes it even better?
At the same time Our Portfolio is trading at its cheapest valuation level ever:
The expected growth in Owners Earnings for Our Portfolio over the next 3 years equals 13.1%.
And because Our Portfolio is trading at its lowest valuation ever, your actual return could be even higher.
I don’t think a 15% annual return over the next 3 years is unrealistic.
Two extra lessons
Two extra lessons I took away from the Greece trip?
When in doubt, zoom out
It’s all about love
When in doubt, zoom out
Barely working for 2 weeks truly helped me to become a better investor.
I came back from this trip feeling refreshed, full of new ideas for the Portfolio.
They will be implemented going forward.
When you’re in the midst of something, sometimes it’s hard to see the bigger picture.
My best ideas always come to me when I’m not working (in the shower, while working out, …).
Stepping away from your daily routine can help you tremendously to be a better human being and investor.
I truly feel this Greece trip made me Richer, Wiser & Happier.
It’s all about love
Investing is all about delayed gratification.
Why are you working so hard?
What are you saving for?
Who are you doing this for in the end?
Investing is a beautiful way to get incredibly wealthy. But don’t forget to live a little bit along the way.
In the end there are only two things that matter:
How much love you gave
How much love you received
Here are the top 5 regrets of people on their deathbed:
The ultimate measure of success in life?
It’s not how much wealth you have.
It’s how many of the people you’d want to love you, actually do.
Conclusion
Here are the key takeaways from today:
Take a break. Stepping away can make you a better investor (and human being).
Trust compounding. Time and patience can turn thousands into millions.
Focus on cash flow. Ignore short-term market noise.
Avoid big mistakes. Stay invested and let compounding work for you.
Don’t forget to live. Wealth matters, but love matters more.
Talk to you on Thursday!
Everything In Life Compounds
Pieter
PS You are not a Partner yet? Join us this Thursday on a free live masterclass. You can register here.
Your fears about the reaction of "partners" with respect to your first 2-week holiday (during which you worked 2 hours per day) are probably unfounded. Personally I think you're making a fuss about nothing and being a show-off. What I would be worried about, if I were you, is the very modest return your portfolio is generating (roughly 12% "compounded" over nearly 3 years) : it certainly is not the stuff that - to use your own words - creates billionaires. On the other hand : respect for the transparency on the portfolio trades and composition. My advise : take some more holidays.
Hi Pieter,
I had to smile at your post about your trip to Greece and your thoughts on long-term compounding, as I actually invest according to a very similar philosophy.
For me, too, factors like quality, cash flow, return on capital, valuation, long-term competitive advantages, and above all, a company’s ability to increase its intrinsic value over many years, rank far above short-term market noise.
However, I pursue a somewhat broader "quality-value" approach, combining elements such as value, quality, growth, and dividend growth with my own metrics, like the "Super Magic Formula" I developed back in 2020, or the combination of ROC and PEG/PEGY ratios.
Or, on a cash flow basis: the "CROIC / P/FCF/G(Y) ratio."
My goal is also to buy outstanding companies at reasonable prices and then let the operational compounding effect work for me for as long as possible.
I’ve been active on Seeking Alpha as "BM Cashflow Detective" for many years, so I think you might find my analyses, and especially my somewhat contrarian views on valuation, cash flow, and long-term compounders, quite interesting.
Perhaps you’d like to follow me there and browse through my many posts and comments.
And one more little personal parallel!
While you’re writing about your trip to Greece and the benefits of taking a break from daily market activity, I’ll be flying to Crete myself in the next few days.
It seems we share similar tastes, not just in investing, but also in occasionally "zooming out" from the stock market noise.
I wish you continued success with compounding quality, and perhaps our paths will cross in the future not only on Substack but also on Seeking Alpha.
After all, it’s incredibly pleasant in the investing world to find people who prefer becoming owners of good companies to interrogating stock prices over their morning coffee.
Best regards and happy quality compounding investing,
BM Cashflow Detective