No doubt each investor will have its own way of adjustment that can be made to the standard process elaborated in the article.
For instance, it may well be that regional/ geographical peculiarities will have to be factored in at some stage of the process ( say at stage_2 ) inorder to provide a more insightful / finetuning of the metrics of each of the selected companies at this stage of screening and profiling
Hi Dede, Thank you for sharing this. I think it's really detailed and does a good job at describing your fundamental approach. I do have 1 question that I was hoping you can please clarify on:
1. Presence of outperformers
This is a purely backwards-looking track record-focused indicator, and I examine which industries have historically produced the most outperformers. Outperformance is defined by companies that have either returned 15% per year over the past 20, 30 or 40 years or 5% over the past 40 years (latter rewards survival).
My question is: 5% per year over 40 years is a much weaker condition than 15% per year over 40 years. Huge differences which will return different names in a screen. Can you please clarify on why there is such a big gap?
Hi Lat, good spot. So 15% per year over 20, 30 or 40 years is outperformance "by growth", while 5% per year over 50 years is outperformance "by survival". Many companies don't last 40 years on public markets so by including those that do survive and return over 5% per year, I'm rewarding industries that have also showed higher propensity for surviving for long. You can see it as "business durability over a prolonged period of time" does this help? I could try explaining in a different way?
Dear Dede, thank you for sharing your process it most enlightening. It is like you have given me a torch as I was finding my way through darkness!
Thank you! It’s a work in progress but found it helpful detailing a process
Excellent work!
No doubt each investor will have its own way of adjustment that can be made to the standard process elaborated in the article.
For instance, it may well be that regional/ geographical peculiarities will have to be factored in at some stage of the process ( say at stage_2 ) inorder to provide a more insightful / finetuning of the metrics of each of the selected companies at this stage of screening and profiling
Hi Dede, Thank you for sharing this. I think it's really detailed and does a good job at describing your fundamental approach. I do have 1 question that I was hoping you can please clarify on:
1. Presence of outperformers
This is a purely backwards-looking track record-focused indicator, and I examine which industries have historically produced the most outperformers. Outperformance is defined by companies that have either returned 15% per year over the past 20, 30 or 40 years or 5% over the past 40 years (latter rewards survival).
My question is: 5% per year over 40 years is a much weaker condition than 15% per year over 40 years. Huge differences which will return different names in a screen. Can you please clarify on why there is such a big gap?
Hi Lat, good spot. So 15% per year over 20, 30 or 40 years is outperformance "by growth", while 5% per year over 50 years is outperformance "by survival". Many companies don't last 40 years on public markets so by including those that do survive and return over 5% per year, I'm rewarding industries that have also showed higher propensity for surviving for long. You can see it as "business durability over a prolonged period of time" does this help? I could try explaining in a different way?