Have you ever wondered why some equities earn the special designation of quality compounder? It sounds easy when you read about Charlie Munger or Nick Sleep buying Costco and holding it forever. But everyone now knows the Costco story and how great it is. We can buy that great business, but we risk paying the wrong price.
So, what enables such businesses to compound? How can we identify their critical characteristics to improve our odds of buying them at a fair or even low valuation?
Jeremy recently had the chance to speak with two high-calibre professional investors who are passionate about doing just this and who spend their time searching the UK market for precisely these situations. These two highly experienced UK equity specialists started their careers in the 1990s at what was Mercury Asset Management and is today BlackRock.
Simon Young, among other things, writes The Curious Compounder Substack, and Mark Wharrier has a varied portfolio, including co-hosting the excellent Business Case podcast and is a colleague of Jeremy’s on the investment committee at Onward Opportunities Ltd.
They discuss Wise and Goodwin as examples of how very different businesses can compound growth. They share key characteristics, such as high return on capital, growth capacity and duration.
Very often, these businesses are founder-led or family-owned, allowing them to pivot when circumstances change and take a considered long-term view about investing.
They also discuss acquisitional compound growth typified by UK-listed Halma and Diploma, or North American-listed Constellation Software. These companies derive their compounding from making serial acquisitions funded from internally generated cash flows.
Finally, they discuss those companies that might earn the serial compounder tag in the years to come.
PIWORLD provides investors with the latest news and insight to listed companies and their management teams through either live or recorded results presentations, corporate overviews, management interviews and Capital Market Days. Together with interviews from leading fund managers, market specialists and esteemed private investors, we aim to keep the private investor community up to date and informed.
PIWORLD delivers high quality audio and video content to present anything from full-year and interim results to Capital Markets Days and corporate overviews. We bridge the gap between listed companies and the private investor community, who drive the share price and provide liquidity, providing a time and cost effective medium to reach this diverse and important audience.
