Thread by @InvestInAssets

Francois Rochon is a fantastic Quality Investor who has Compounded his Capital by more than 15% annually for almost 30 years🧵📈

Let's take a look at Francois' Investing Strategy and Philosophy so we can learn his Methods and Mental Models 📊

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Investment Philosophy 📈

•Time in the market beats timing the market
•The stock market is not efficient in the short term
•Only buy companies with a competitive advantage
•Stocks are the best asset class for long-term investment

•Focus on companies with steady margins and high returns on capital
•Good long-term prospects and a dedicated management team are crucial
•If you are right about the business, you’ll eventually be right about the stock

Rochon's Business Analysis Framework 📊

•Outlook - Secular growth
•Valuation - 5-year valuation model
•Financials - High ROC, growth, and low debt
•Business model - Moat, market leader, low cyclicality
•Management quality - Ownership, Capital allocation

Competitive advantages are essential 🏰

Not only will a moat protect the cash flows from a business

It will also hedge against inflation, which is an inherent part of our economic system

A business should be able to rise prices in inflationary environments

Rochon's rules for managing expectations 1️⃣/3️⃣

•1/3 years the stock market falls a minimum of 10%
•1/3 stocks we buy will disappoint
•1/3 years we will underperform the index

These rules are great tools to manage your own expectations when things don't go your way.

Focus on businesses, ignore macroeconomics 📚

Part of Rochon's strategy is to identify quality businesses with a moat

Rochon wants to buy these businesses at a reasonable price (Sounds familiar?)

And he wants to pay as little attention to geopolitics/macro as possible

Owners earnings 💰

In the short term, stock prices may fluctuate, but in the long term, they follow the intrinsic value of the company.

Rochon tracks the intrinsic value of a company through its owners' earnings.

Owner earnings is also a metric Buffett uses :

Share your mistakes ⛔

Rochon has a tradition of sharing mistakes he has made over the years

From his 2022 letter, we can read about his mistake of not buying LVMH when it was trading at a PE of 16

Rubbing your nose in your mistakes will force you to learn from them

Multiple contraction and expansion 📊

In the short term, the stock market is a voting machine, in the long term, it's a weighing machine.

Stocks will eventually follow the fundamentals. Rochon follows the owner's earnings and ignores the noise.

3 Essential Traits for a Successful Investor 🧠

1. Patience: It can take several years before the market recognizes the true value of a business

2. Rationality: i) Ignore fads, ii) Ignore short-term noise iii) focus on what you can control

3. Humilty: Continuous improvement

Patience is a virtue for investors 👴

One important trait for all investors that both Rochon and Munger talk about, is the ability to defer gratification.

The same applies to patience after investing in a business, let the story play out before you react.

Don't cut the flowers and water the weeds 💐

Oftentimes, your biggest mistake in the markets will be selling a stock too early.

One should aim to be long-term in stocks, as there is an edge to having a long-term view. Rochon prefers a holding period of +6 years.

Rochon has great mental models and frameworks that make him a brilliant investor 🧠

His philosophy emphasizes:

- Focus on intrinsic value and quality
- Great management
- Business Outlook
- Owner earnings
- Long-term
- Patience

Simple, not easy.

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I write about my journey as a private investor focusing on high-quality businesses

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