Episode 401: How to Spot Rare Quality Businesses Among All the Losers
On this week's Stansberry Investor Hour, Dan and Corey welcome Pieter Slegers to the show. Pieter is the founder of Compounding Quality, an investment newsletter that boasts more than 440,000 subscribers.
Pieter kicks things off by sharing how he got his start in asset management, why he began investing in U.S. stocks, and the difference between value investing and quality investing. This leads to a discussion about Warren Buffett's impressive track record and one particular software company that Pieter likes today. He breaks down several criteria he uses when looking for investment opportunities – including founder-led businesses, long-tenured CEOs, and wide moats – and how exactly he narrows down his list...
You can look at the investment process a bit like a funnel. So you start with the broad market and then you enter the criteria of staying within your circle of competence – only invest in companies you understand. Maybe out of the 60,000, 30,000 remain. Then you are going to enter all your quantitative criteria... Only, say, 500 companies remain.... And that's how you are filtering everything down.
Next, Pieter talks about the evolution of his successful X account that he began anonymously but eventually put his face on after it gained a lot of attention. As Pieter emphasizes, if you're taking investment advice from someone, that person should be invested alongside you and have skin in the game. For that reason, Pieter is looking to launch an investment fund later this year. Pieter then lists off a few companies he likes today and discusses the importance of investing in growing end markets...
What I think is really important is to look at what the secular trends are, what the structural growth markets are, and just invest alongside them. It has almost never been a mistake.
Finally, Pieter gives his thoughts on the balancing act between paying high valuations for good companies versus missing an opportunity to own a great business. As Pieter details, it's all about an investor's individual risk tolerance and whichever strategy works best for them. Pieter also covers the flaws in discounted cash flow ("DCF") models, two companies that are overpriced today based on reverse DCF, and the three valuation methods he personally uses...
Your expected return as an investor is always equal to the free cash flow per share growth, plus the dividend yield, plus or minus the change in the valuation.
Click here or on the image below to watch the video interview with Pieter right now. For the full audio episode, click here.
(Additional past episodes are located here.)
The transcript is coming soon.