At The Crossroads Between Perseverance and Herding
+ our H1 performance and glitches in consumer discretionary
Our Deep Dives so far in 2024
Hi Partner!
We’re busily writing our H1 letter filled with info that matters most to quality growth investors: stressing our companies’ excellent recent and long-lasting financial performance.
Compouding stalwarts we’ve covered through our deep dives so far in 2024:
And there’s more to come! Once again, a variety of companies that are relatively easy to comprehend from the outside: a niche industrial serial acquirer, an automotive aftermarket cash flow machine, and the world’s leading sauna and spa company. It’s like a candy shop for anyone looking to extend his/her investable universe beyond mainstream large caps.
Bi-Weekly Webinar
To give you a peek into the current market environment and our main H1 takeaways, our bi-weekly webinar focused on:
At the crossroads between perseverance and herding. Clearly, with the huge amount of individual stock volatility, multiples and IRRs are whipsawing like crazy.
Meanwhile, the market-cap weight indices are near or at all-time highs. We’re noticing a growing divergence between rational and momentum-driven investment strategies.
It’s becoming somewhat self-evident to expect high-teens return CAGRs in this tech and AI dominated market. Questions like: “Which stocks do you expect will 5x over the next decade?” have become the new norm. Luckily, none of our holdings are being mentioned on social media. Thank-goodness!
High turnover makes us even more bullish on our long-time compounders: very few investors have been reaping their past >20% CAGRs. Today, investors are looking for quick gains, implying that steady and proven winners are being left in the dust (relatively speaking as they’re up >150% over the past five years).
A Discounted Cash Flow method’s pitfalls: it’s a gross number (what about dividend taxes?), cash flows aren’t always easy to model (e.g. for small caps) and most importantly: will the excess cash even get distributed back to shareholders? The optionality value of strong excess cash flow generators lays the foundation for below-average volatility and effective returns that exceed our conservatively modeled IRRs (more on that below).
Glitches in consumer discretionary with Nike and Pool Corporation: risks of poor inventory management, volatility in valuation multiples, and the risk of over-promising and under-delivering becoming entrenched in investors’ expectations and subsequent exit multiple.
You can access the webinar and material at the end of this post.