Discover the shift from traditional value investing to quality investing, emphasizing the importance of selecting exceptional, founder-led companies. Learn key metrics for identifying robust investment opportunities and strategies for portfolio building. The discussion covers valuation techniques and the significance of earnings growth and dividend yield. Explore the long-term commitment required for success in quality investing, and see how AI technologies could impact market dynamics and competitive advantages.
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question_answer ANECDOTE
Shift to Quality
Pieter initially focused on value investing and Belgian stocks due to home bias.
A job contract prohibiting Belgian stock ownership forced him to rethink his strategy, leading to quality investing.
insights INSIGHT
Quality Investing Defined
Quality investing focuses on wonderful companies at fair prices, emphasizing long-term compounding.
Aligning incentives by investing in owner-operator stocks increases shareholder value creation.
volunteer_activism ADVICE
Filtering for Quality
Use quantitative criteria like moat, skin in the game, capital intensity, allocation, profitability, and growth to filter investment opportunities.
Combine multiple criteria that tend to outperform to create a watchlist.
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How to make money by only buying the best companies in the world – An anthology of investment writing, 2010–20
Terry Smith
This book is a collection of essays and letters written by Terry Smith between 2010 and 2020. It debunks common myths of investing and advocates for a simple yet effective strategy: buying the best companies in the world. Smith highlights businesses that generate significant cash and know how to utilize it effectively, leading to powerful compounding of returns. The book covers various topics, including why to avoid companies that abuse the English language, the risks of ETFs, and the pitfalls of ESG investing. It also includes Smith's ten golden rules for investment and practical insights on making money work for you.
Stocks for the Long Run
The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies
Jeremy Siegel
Stocks for the Long Run provides a detailed analysis of the stock market's historical trends and long-term investment strategies. The book, updated to reflect current market conditions, includes discussions on value investing, ESG issues, the impact of the financial crisis, and the role of international investing. Siegel argues that stocks have consistently outperformed other asset classes over the long term, averaging returns of 6.5 to 7 percent per year after inflation. The book also addresses market valuation, the effects of inflation and interest rates, and the importance of diversification in a global economy.
The outsider
Colin Wilson
In 'The Outsider,' Colin Wilson examines the psyche of the Outsider through the lives and works of various literary and cultural figures such as Albert Camus, Jean-Paul Sartre, Ernest Hemingway, Hermann Hesse, and Fyodor Dostoyevsky. The book delves into the Outsider's experience of dislocation and his struggle to find meaning and purpose in a world that seems devoid of it. Wilson argues that the Outsider is a metaphysical man who seeks a transcending meaning and purpose for human existence, often feeling isolated and disconnected from society. The book is both a study of the Outsider's predicament and an impassioned call for a new form of existentialism that could provide a satisfying and objective religious understanding of life.
Poor Charlie's Almanack
The Essential Wit and Wisdom of Charles T. Munger
Charles T. Munger
Peter D. Kaufman
Originally published in 2005, Poor Charlie's Almanack is a collection of eleven talks delivered by Charles T. Munger between 1986 and 2007. Edited by Peter D. Kaufman, this book draws on Munger's extensive knowledge across various fields to provide a framework for rational and rigorous approaches to life, learning, and decision-making. It is renowned for its sharp wit and rhetorical flair, making it an essential read for investors, entrepreneurs, and anyone seeking to enhance their wisdom and critical thinking skills.
The intelligent investor
Jason Zweig
Benjamin Graham
Written by Benjamin Graham, 'The Intelligent Investor' is a seminal work on value investing that has inspired millions since its original publication in 1949. The book emphasizes the importance of distinguishing between investing and speculation, calculating the intrinsic value of companies, and maintaining a margin of safety. The revised edition includes updated commentary by Jason Zweig, who provides modern examples and insights to help readers apply Graham's principles in today's market. Warren Buffett, a disciple of Graham, has praised the book as 'the best book about investing ever written'.
This week on OPTO Sessions, Compounding Quality’s founder, Pieter, shares his insights on quality investing. His newsletter, read by LeBron James and Bill Ackman, focuses on investing in the world's best companies. In this episode, he discusses his shift from value to quality investing, defines quality stocks, and outlines key selection criteria. We also explore valuation techniques, significance of investment time horizons, and the current market environment’s impact on quality investing.
Compounding Quality on Substack: https://substack.com/@UCxUxD8PSFN_JofKFMRGz4hA
If you enjoyed this interview, consider subscribing to our Substack channel for more in-depth insights designed to help you invest smarter: https://optoforesight.substack.com/
Create your Own Stock Index & Invest Smarter with OPTO Folios: https://optothemes.onelink.me/BZDG/ti2lb2fd
The content in this podcast is for informational purposes only. Opto Markets LLC does not recommend any specific securities or investment strategies. Investing involves risk & investments may lose value, including the loss of principal. Past performance does not guarantee future results. Investors should consider their investment objectives and risks carefully before investing. The information provided is not an endorsement of this product and is for information and/or educational purposes only.
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