Context: Why Speculative Positions on a Growth Investing Site? This site focuses on growth investing — the careful selection of high-quality compounders that can generate wealth over decades. The core of the approach is finding businesses with durable competitive advantages, high returns on capital, and long runways for reinvestment. But even a disciplined growth investor…
Category: Growth Investing
The Paradox of Wealth: Why Survival Beats Optimization (A Manifesto for the Ergodic Investor)
You have spent years building your wealth. You took risks, you optimized, and you won. You have reached the summit. But standing at the top, a strange feeling takes hold: vertigo. Why? Because you intuitively realize that the rules that got you here are not the rules that will keep you here. Traditional finance is…
The Volatility Tax and How to Defeat It: A Mental Model for How to Survive the Maths of the Market
We are all taught the same fundamental truth of investing: Stocks go up over time. We are shown a chart of the S&P 500 moving from bottom-left to top-right and told, “Just buy, hold, and wait.” For the index, this is true. But for individual stocks, this is often a dangerous lie. The reality of…
A Framework for Long-Term Profitable Growth Investing
Investing is a journey that requires a careful blend of financial knowledge, psychological awareness, and a long-term perspective. This essay presents a framework for navigating the complexities of the market and achieving enduring financial success. 1. Foundational Principles 1.1 Long-Term Vision Successful investing is a marathon, not a sprint. It demands a vision that transcends…
The Dynamics of ROE and Revenue: Identifying Great Compounders
In the quest for exceptional investments, one metric stands out as both a guiding light and a rigorous filter: Return on Equity (ROE). However, while ROE is essential, it alone doesn’t tell the full story. The interplay between ROE, earnings growth, and revenue dynamics reveals the true quality of a business—and its potential as a…
Stocks Duration
Short duration or short-term stocks are returning near-term cash to their owners while long duration stocks are expected to return cash, or the greater part of it, later, such as growth, early stage, or not-profitable stocks. In a similar fashion than bonds, rising interest rates will affect long-term stocks more than the short duration ones…
Disruptive Innovation and the Return on Capital Imperative
This post explores the Late Harvard business professor Clayton Christensen work on disruptive innovation (The Innovator’s Dilemma: When new technologies cause great firms to fail), which could serve as useful mental model for the equity investor. Disruptive Innovation: The Source of Real Growth Disruptive innovation is an ongoing process inherent to capitalism that occurs whenever…
Share Buybacks, Dividends and Optimal Capital Allocation
A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return. Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long…
Growth and Multiple Expansion: the “Twin Engines” of 100-Baggers
Stock price rises over time based on the quality of earnings and on how long those earnings can be reinvested at high rates of return. A business generating consistent high ROE and growth in revenue and book value compounds its re-invested earnings at a rate of return at least equal to its ROE, assuming no…
Great Businesses Compound Earnings At High Rates
GREAT BUSINESSES COMPOUND THEIR EARNINGS AT HIGH RATES The characteristics which growth stocks enjoy were studied by security analyst Thomas Phelps in a book published in 1972 entitled 100 to 1 in the Stock Market. $10,000 compounding at 26% for 20 years turns into $1,000,000. How high the price of a stock rises over time…