Letter to Our Partners - Q1 2024
Taking quality growth investing to the next level
The primary objective of our quarterly letters is to go over the key fundamental drivers of our portfolio and the latest trends for the companies that currently sit in our portfolio. And whilst we’re long-term focused investors, we acknowledge the world is constantly changing. Therefore, we should never be complacent about past performance but instead optimize our portfolio for any market environment. Our goal is to explain in detail the long-term investment philosophy behind the selection process for the companies in our portfolio so that our Partners know what to expect.
At the beginning of this year, we started “The Compouding Tortoise” newsletter not knowing what to expect, not knowing how much interest there would be in the strategy we had been applying for several years. We did not set any goals (e.g. how many subscribers should we reach by the year-end) as Substack allowed us to just write about what we’re passionate about: Corporate Finance/M&A and the building blocks that make a truly great quality growth investing strategy and portfolio.
So far, it’s been an unexpected success. In fact, this summer we’ll be meeting some of you in person, which will undoubtedly result in great discussions on investing and life in general. Lifelong friendships will surely be created over the next couple of years.
We’re Partners
While we don’t manage an equity fund, we view our premium members as our partners. We’re all in this together and we’re extremely grateful for getting the opportunity to learn from each other.
Looking at past quarter’s earnings season, little has changed. Our companies continue to do what they do best: allocating capital for an appropriate risk-weighted return so that we, the shareholders, can sleep well at night. As Linde’s CFO White said: “Nobody knows what the future will bring on inflation. But what I can say is we continue to internally focus on a model that can quickly adapt to whatever does happen.”
As such, the rinse-and-repeat process of sustaining shareholder value creation boils down to:
Low cyclicality – value creation regardless of the economic outlook
Strong reinvestment rates (CAPEX, M&A)
Strengthening ROIC and leveraging ROIIC - balancing ROIC and investments that meet stringent criteria
Proactive capital allocation for leftover cash: share repurchases and dividends
Sound financial position (though we’re not debt averse)
A repeatable growth strategy that doesn’t attract much competition
It’s nothing more, it’s nothing less. And whilst there are thousands of publicly listed companies, only a handful of them will succeed at keeping the compounding flywheel going for several years, and in some cases even decades.
There will be tougher times ahead and our job is to transparently share our investment journey with you.
Thank you for your support and let’s keep growing “The Compounding Tortoise” family.
You can read our first quarterly letter through the below attachment.