Our Favorite Buys in Q3
+ more insights into "Fooled by Randomness", multiple expansion and Lifco earnings
Time for a new webinar which (among other topics) provides more context around the book “Fooled by Randomness”. What should quality growth investors learn from the book to help them better define a stay-the-course strategy? Especially in today’s market environment that’s filled with noise…
Plus, we’re highlighting our favorite buys for Q3 (and likely Q4). Little has changed: we continue to see attractive and above all steady long-term IRRs for most of our stocks. We’ve got a couple of questions on our buying targets (which are subjective). These aren’t static, and our effective transactions will reflect our thoughts on our desired sector bucket weightings (e.g. VMS serial acquirers). These allocation will vary as we move forward, based on risk and projected IRR.
Also, remember that our IRR model 1) underestimates the potential of our companies reinvesting more than we’ve expected and 2) shouldn’t be generalized for all portfolio companies, as the level of conviction won’t be the same for each holding (small vs. large caps, terminal value risk, transparent capital allocation policy). IRR is driven by consistent execution, because time is money. We don’t want to own lazy capital allocators or cyclicals that we hope to catch at the bottom.
As we pointed out in a previous webinar, determination and a clear focus on holding onto a select group of multi-decade or even multi-century winning businesses is what our strategy is all about.
McKinsey
Riding your winners, reading through all annual reports, management and sector reviews… But we shouldn’t be or become valuation agnostic: we must - from time to time - weigh the risk-adjusted return outlook for our holdings and if we find a better alternative (preferably and most likely within our portfolio), we’ll take action to optimize our future performance. Or as we’d like to call it: effective diversification by focusing on the best-of-breed compounders.
Finally, we’ll go over the Lifco earnings report and our thoughts on valuation as our sizable purchase in October of last year is up 75%, driven primarily by a substantial re-rating. It’s an interesting debate in light of what we’ve learned from “Fooled by Randomness” and the framework of IRR: weighing alternatives within our existing portfolio.
You’ll find the webinar below with the related PDF material.