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Hi Friend 👋
If you grasp the most powerful concept in finance, you’ll be better off than 99% of everyday investors.
This concept is so important that it’s given this newsletter its name…
… Compounding.
Some people call compounding a positive feedback loop or a snowball effect.
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Einstein simply said it’s…
“The eighth wonder of the world.”
Compounding is so powerful because it’s based on the law of exponential growth.
Most people fail to recognize the implications of exponential growth.
It isn’t surprising.
Exponential growth rarely happens in everyday life.
Trees grow linearly, babies become teenagers linearly, and we travel at linear speeds.
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Evolution didn’t give us an intuitive sense of things behaving exponentially.
But in the world of finance…
… Exponential growth is the reason some people can retire comfortably while others can barely make ends meet.
Let’s say Adam saves $1,000 a month and earns an average of 4% annually, compounded monthly across 20 years.
On top of the money he’ll have saved at the end of that period ($240,000)…
…Compounding will have put an extra $126,774 in Adam’s pocket.
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A metric known as CAGR (compound annual growth) measures the exponential strength of an investment.
❓❓ What is a good CAGR?
A CAGR of about 9% is considered to be strong.
And the best investors in the world? They can compound at 15% per year. This means you double your money every 5 years.
Let’s assume Adam invests $1,000 each month at a CAGR of 15%.
In that case, he’d make an extra $1.26 million on top of the money he saved after 20 years.
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Again, no one can guarantee this rate of growth in the future.
It could be higher… it could be lower.
Most importantly, remember that all investments carry risk.
But the key is to…
Take good, intelligent risk.
That’s what my Compounding Quality Portfolio is all about.
All stocks in my portfolio have been vetted with my 7-factor CQ-method:
A wide moat: All companies in my portfolio are clear market leaders with strong pricing power.
High management integrity: Management has skin in the game. Their interests align with yours as an investor.
Low capital intensity: These companies require very little capital to maintain their current business and to achieve future growth.
Great capital allocation: Most of these companies’ cash is reinvested back into the growth of their businesses.
High profitability: The free cash flow margin of these companies is at least 15%.
Attractive historical growth: My portfolio positions managed to outperform the stock market for years and sometimes even decades in the past.
Secular trends: These stocks ride powerful trends. Think about themes like urbanization, AI, datacenters, semiconductors, or obesity. These sectors are only going to grow from here.
I believe in this method so much that ALL my investable assets are in this portfolio.
My success is your success. It’s all about having skin in the game.
How can you get access to my personal portfolio?
Access to my portfolio is reserved for Founding Partners.
The normal price to get in is $1,199.
Had you invested just $5,000 in my fully allocated portfolio, you’d have increased your position by $1,350.
Your subscription would’ve paid for itself within a year.
But I appreciate your continued support as a Compounding Quality reader.