Morgan Stanley’s paper “The Equity Compounders” has been a huge influence in my investing style. Here are the main insights👇🏼 Companies with high cash returns on capital invested outperform those without.

Five YouTube videos that will make you a better investor.

1. Aswath Damodaran's Corporate Finance Class

2. Terry Smith detailing what a good company looks like

Here’s a list of my favourite books on investing.

1. Applied Corporate Finance - Aswath Damodaran 2. Valuation - McKinsey

Start to finish, here's how semiconductors are made and the role all our favourite companies play.

$ASML $TSMC $NVDA $CDNS

⬇️⬇️⬇️ Design
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Companies like NVIDIA and AMD develop semiconductor chip designs that define the functionality, architecture, and performance of their graphics processing units (GPUs) and central processing units (CPUs).

Start to finish, here's how semiconductors are made and the role all our favourite companies play.

$ASML $TSMC $NVDA $CDNS

⬇️⬇️⬇️ Design
--
Companies like NVIDIA and AMD develop semiconductor chip designs that define the functionality, architecture, and performance of their graphics processing units (GPUs) and central processing units (CPUs).

These five videos are an absolute masterclass for investors.

1. Aswath Damodaran - Corporate Finance

This covers everything you need to know about how a company should manage its money. Essential listening.

youtube.com/playlist?app=d… 2. Terry Smith - What is a good company?

In this video the manager of Fundsmith Equity goes into great detail of what makes a good company. Timeless truths.

Investing Masterclass 2.0

1. Aswath Damodaran breaking down free cash flow

2. Terry Smith explaining why quality outperforms value

These five videos are an absolute masterclass for investors.

1. Aswath Damodaran - Corporate Finance class

This covers everything you need to know about how a company should manage its money. Essential listening.

youtube.com/playlist?app=d… 2. Terry Smith - What is a good company?

In this video the manager of Fundsmith Equity goes into great detail of what makes a good company. Timeless truths.

These five videos are an absolute masterclass for investors.

1. Aswath Damodaran - Corporate Finance class

This covers everything you need to know about how a company should manage its money. Essential listening.

m.youtube.com/playlist?list=… 2. Terry Smith - What is a good company?

In this video the manager of Fundsmith Equity goes into great detail of what makes a good company. Timeless truths.

Here are two new financial metric I've been working on:

= 10yr FCF CAGR - 10yr Revenue CAGR

and

= 10yr FCF/share CAGR - 10yr FCF CAGR

Here's an example using Visa $V

⬇️⬇️⬇️ 1/ Since 2013, Visa has grown its Revenue by 11% pa and its FCF by 24% pa.

Efficiency, such as fixed costs staying fixed (i.e. op leverage) created this 13% difference.

In 2013, $0.22 of FCF was created for every $1 of Revenue. Today it's $0.61 of FCF for every $1 of Revenue.

What are your favourite academic articles on outperforming in investing?

Here are some that I've been looking into recently.

⬇️⬇️⬇️ 1/ Stock exchanges significantly outperform the market.

There's clearly lots to like about $ICE and $NDAQ

QUALITY, GROWTH + VALUE

• Historically, quality growth stocks have had higher FCF yields, sometimes as high as 7%.

• QUESTION: What would be the impact of a rising FCF yield on a quality growth portfolio?

⬇️⬇️⬇️ • The current FCF yield of my portfolio is 2.67%. Let's assume this rises to 7% over the next 5 years.

• What would be the impact of this on the portfolio?

• Let's also assume the current FCF per share growth of 19% for my portfolio continues - of course this may not.

Here's how to calculate a company's market implied growth rate:

⬇️⬇️⬇️

In this example we will use Microsoft, we will use EPS (FCF/share is better where available) and we will use a 5 year time horizon. First, we need Microsoft's:

Share price = $241.22
EPS = $9.65
Price-to-earnings (PE) ratio = $241.22/$9.65 = 25

And the market's PE ratio. We will use the S&P 500:

PE ratio = 21

Here are three concentrated global equity funds focused on quality:

- Findlay Park American
- Guardcap Global Equity
- Morgan Stanley Global Brands

And here are where the holdings they have in common overlap👇

Which are you most bullish on? Here's the complete list of Findlay Park's holdings:

NOT ALL MOATS ARE CREATED EQUAL
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Morningstar has a game-changing paper on competitive advantages.

Here are the main insights👇🏼 The wider the moat, the longer the time horizon for returns on capital staying above cost of capital.

Morgan Stanley’s paper “The Equity Compounders” has been a huge influence in my investing style.

Here are the main insights👇🏼 Companies with high cash returns on capital invested outperform those without.

Here's a short thread on the three approaches I take to VALUATION

NOTE: business quality (returns, margins, growth) is of way more importance to me than valuation.

Let's get started👇 MODEL 1

Compare implied future growth to historic actual growth.

> Calculate the growth rate required for the multiple to equate to the S&P 500 multiple (market average). Then compare that to the historic growth rate.

Here’s why I like Qualys $QLYS - the cloud based security provider 👇🏼

1. They are focused on growing FCF 2. They are buying back shares

Our presentation "Why We Own Them" sets out our rationale/conviction for each holding in our portfolio of global compounders.

longeq.com

👇 L'Oreal EPA:OR

Here are 3 mid-cap compounders that I'm currently researching. Each has compounded capital over decades with low volatility and pays a dividend.

👇 1/ Silgan $SLGN

Model: producers consumer goods packaging.
10yr FCF growth: 5.5% CAGR
10yr linearity: 0.84
Share price return: 3,451% (since Dec 2000)
Div yield: 1.59%
P/E: 12.04

Texas Instruments $TXN is an oustanding semiconductor business focused on free cash flow growth. No wonder they consistenly beat the S&P 500.

Here's what investors can learn from their Capital Management Presentation 👇 1/ Focus on FCF growth - this is the ultimate driver of long-term value.