My investment method
Focus on quality for long-term return
Fellow investor,
When I started my investment journey over 15 years ago, I didn't have the right methods:
I looked for companies whose share prices had fallen, telling myself they would rise again. Nothing came of it.
Then I tried risky, fast-growing companies. Nothing came of it.
I used the technique of averaging down when a stock price falls. That didn't work either.
Using my failures to grow, I researched and learned investment methods. I also used my background as a strategy consultant to pick up the most relevant analysis methods. And I finally understood that long-term returns depended mainly on the quality of the companies. Since then, the stability of my investments has increased and the returns have been positive.
That is why I have decided to share my experience and the road I have travelled and am still travelling. It is this kind of sharing that could have saved me time and money by helping me to perfect my investment style faster.
My investment style and analysis methods are my own. They are freely inspired by what I've seen, and mainly help guide me in my buying and selling. To do this, I use three main methods:
🏆 A scoring system where I focus on company metrics to identify my investable universe.
💰 A valuation system to identify the relative price of the company and optimize, as far as possible, my entries and exits.
📚 In-depth qualitative analysis of interesting companies
What am I looking for in a company?
6 main elements make up my stock selection process. One way of summarizing them is this diagram from a BCG study on shareholder value creation. You can see that it is important to look for a great company + a great stock to get a great investment. And to do that, they need to align business, financial and investor strategies.
1. Quality metrics
A wide range of quality metrics exist. My favorite are net profit margin, return on capital (ROE / ROCE / ROIC) and the balance sheet (cash / debt). Strong margins, High Return on Invested Capital and cash-on-hand are signs that the company has a competitive advantage, is well managed and has all the means necessary to maintain its dominant position and ensure profitable growth.
2. Growth
Of course growth is important as it is the main factor of long-term return. For that, I use both past growth and expected future growth (revenue and EPS).
3. Valuation
I use both the PE and the FCF yield to avoid any accounting issues. It is also at this point that I can check that the company has a good FCF conversion rate.
4. Shareholder return
It is important for me to invest in companies that ensure their shareholders' investment performance. To do this, I look at dividend yield, dividend growth and buybacks. If the absence of a dividend is not an obstacle, I avoid as far as possible companies that dilute their shareholders.
5. Market interest and company position
For this part, I need to assess the long-term interest of the market and how the company is positioned on it. This is a more qualitative approach. I will be looking in particular at moat elements and competitive advantages.
6. Stock price vs my fair price estimate
This personal valuation helps me position my inputs and (rare) outputs. The aim is not to be precise, but to have a price reference.
Diversification or concentration
The aim of my investment method is to get a good night's sleep without stressing about my investments. In this respect, I prefer diversification, as this helps to limit risk.
This may come at a price: lower performance. But let's not forget all those concentrated investors who have lost enormously... I don't claim to be better than them. So I just take less risk. It is up to each individual to decide whether his or her investment style is more focused or more diversified.
And then?
Once in, I maintain my position as long as my investment thesis is intact. The rest of the game requires one thing: patience.
So my aim is not to find the stock that will perform best next month or next year, but one that will perform well over the next 10 to 20 years. That is as simple as that. A great selection process and patience. What if, in the end, the simplest strategies were the most effective?
See you soon on the investment road!