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Posted

Use macro for strategic cash allocation and invest in long term compounders that will outperform S&P (positive rev growth, high ROIC, FCF, prudent buyback/M&A).

Posted
1 hour ago, Vish_ram said:

Use macro for strategic cash allocation and invest in long term compounders that will outperform S&P (positive rev growth, high ROIC, FCF, prudent buyback/M&A).


Can we really call this an approach when it’s pretty much what everyone is doing?  Approach is just as much the how than the what.

Posted (edited)

Let me elaborate

 

Macro: the attached pic outlines the overall approach. We use indicators like temp help, U6, job openings and several others. 

 

Compounders selection: based on several factors

1) buybacks - we run screens to find out companies that buyback at least 2%/annum and drill down more to find best ones

2) we use koyfin for checking trends in margin, profitability, multiples (on P/S, EV/EBITDA, P/E etc), trends in FCF/sh

3) company should be an industry leader (1 or 2)

4) Long term record of good M&A, buy back

5) Management incentivized and aligned

6) Always trim if overvalued and back up the truck when cheap

7) Constantly evaluate current positions with those in watchlist 

8.) Maniacal focus on CFO, capex, FCF and trend

9) Ignore turnarounds, hopium stocks

10) only focus on stocks that have durable competitive advantage, pricing power

11) Avoid all commodities 99% of the time

12) Avoid leverage, penny/microcap/99% of small caps

13) Avoid foreign stocks

 

Last 5 years the annualized returns for clients were 20% after fees Vs 12.x for S&P 500. The use of macro significantly improved the performance. 

macro_cash.jpg

Edited by Vish_ram
Posted
1 hour ago, Vish_ram said:

Let me elaborate

 

Macro: the attached pic outlines the overall approach. We use indicators like temp help, U6, job openings and several others. 

 

Compounders selection: based on several factors

1) buybacks - we run screens to find out companies that buyback at least 2%/annum and drill down more to find best ones

2) we use koyfin for checking trends in margin, profitability, multiples (on P/S, EV/EBITDA, P/E etc), trends in FCF/sh

3) company should be an industry leader (1 or 2)

4) Long term record of good M&A, buy back

5) Management incentivized and aligned

6) Always trim if overvalued and back up the truck when cheap

7) Constantly evaluate current positions with those in watchlist 

8.) Maniacal focus on CFO, capex, FCF and trend

9) Ignore turnarounds, hopium stocks

10) only focus on stocks that have durable competitive advantage, pricing power

11) Avoid all commodities 99% of the time

12) Avoid leverage, penny/microcap/99% of small caps

13) Avoid foreign stocks

 

Last 5 years the annualized returns for clients were 20% after fees Vs 12.x for S&P 500. The use of macro significantly improved the performance. 

macro_cash.jpg

Thanks for the explanation 

  • 3 weeks later...
Posted

My approach is to find a couple companies that have a strong long lasting competitive advantage in a niche market - that can increase revenues and earnings at near double digit rates every year for decades and decades and is at low risk of tech disruption.

 

this way you can have your entire portfolio in only a couple companies for decades. And the most importing - you feel comfortable doubling down every time it’s down big. Also makes investing easy….that is, once you find these two gems

Posted
3 hours ago, dpetrescu said:

My approach is to find a couple companies that have a strong long lasting competitive advantage in a niche market - that can increase revenues and earnings at near double digit rates every year for decades and decades and is at low risk of tech disruption.

 

Any prospects you're comfortable sharing? Buffett in his latest letter reiterated the approach: worry less about price, buy high ROIC with long runways. Obviously hard to divine, but that's the goal.

Posted
13 hours ago, LC said:

Any prospects you're comfortable sharing? Buffett in his latest letter reiterated the approach: worry less about price, buy high ROIC with long runways. Obviously hard to divine, but that's the goal.

 

You didn't ask me, but here's a hint - just think of all those building code books around the world that require the purchase and use of hundreds of little pieces of bent metal - it's better than auto insurance!

spacer.png

Posted
2 hours ago, gfp said:

 

You didn't ask me, but here's a hint - just think of all those building code books around the world that require the purchase and use of hundreds of little pieces of bent metal - it's better than auto insurance!

spacer.png

Hah! I’ve owned Simpson on and off. Do you think it qualifies as having a long runway based on new housing stock needs? 

Posted
4 hours ago, LC said:

Hah! I’ve owned Simpson on and off. Do you think it qualifies as having a long runway based on new housing stock needs? 

Geez what a run through Covid! But it actually looks like something happened around 2018 margin and return wise. Going to have to look into SSD. 
 

 

  • 1 month later...
Posted
On 2/25/2024 at 3:00 PM, dpetrescu said:

My approach is to find a couple companies that have a strong long lasting competitive advantage in a niche market - that can increase revenues and earnings at near double digit rates every year for decades and decades and is at low risk of tech disruption.

 

this way you can have your entire portfolio in only a couple companies for decades. And the most importing - you feel comfortable doubling down every time it’s down big. Also makes investing easy….that is, once you find these two gems

What price do you have on reinvesting in SSD? 

Posted

It probably took me a decade to figure out not to turn my portfolio over too much, stop trying to invest outside the US just for diversification, holding too much cash trying to time the market, and not paying enough attention to great mgmt/capital allocators. Now I try to find companies that I’d rather never sell, with good mgmt., are in the right industry, and aren’t at extreme valuations. 

Posted (edited)

I know this is a stupid question but if I’m using the long term treasury rate to discount future cash flows at, wouldn’t average nominal GDP growth be the best terminal growth rate?
 

I see all these videos on DCF models that use WACC as their discount rate so I can’t confirm.

Edited by blakehampton
Posted (edited)
21 hours ago, blakehampton said:

I know this is a stupid question but if I’m using the long term treasury rate to discount future cash flows at, wouldn’t average nominal GDP growth be the best terminal growth rate?
 

I see all these videos on DCF models that use WACC as their discount rate so I can’t confirm.

 

The very fact that you ask questions means you are on the right track.

 

I read several posts where you are missing something very fundamental. 

 

If interested read this book end to end, make notes, read it again, give it a few months, read your notes again. I spent 6 months on this book after completing all three levels of CFA and it was an eye opener.

 

https://www.amazon.com/Investment-Valuation-Techniques-Determining-Second/dp/0471414883

 

The point is to understand the fundamentals very thoroughly. Saves you so much time the rest of your investment life.

 

Good luck.

 

Vinod

Edited by vinod1

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