E2132 Debrief
This week we discuss SUPERCOMPOUNDERS - aka - companies that have been fantastic compounders of capital over the long term
This week we discussed one of my favorite topics, the power of compounding. If you have yet to listen to the latest episode, you can subscribe on Apple Podcasts, Spotify and SoundCloud, or you can listen to it right here…
As investors, our goal is to compound our money over the long term. In order to do that, we either need to select investment managers that are capable of doing so, or select companies for our own portfolio that are successful compounders. To hammer this point home, the following chart shows the difference between investing $10k today at various compound rates. 7.5% might be what one could expect if they were to invest by way of passive indexing (though, I think this is on the high end and it is ). As you can see, the difference over time is overwhelming.
Selecting great, compounding companies for a portfolio is no easy task. Investors that get this right more than half the time will have great success.
This past week we discussed a number of companies that have been successful compounders over the long term, but before we dig in, I'll explain the data behind the calculations.
First, I pulled the IPO date for a handfull of companies we've discussed recently.
Next, I discounted $10k in today's dollar value back to the time of the IPO, using CPI data.
Then I simulated an investment in that company at the average price the stock traded at during the first year after the IPO.
Finally, I calculated the value of the investment today including reinvested dividends, and computed the IRR over the holding period.
A few observations...
While there are mostly 'tech' companies on this list, tech companies aren't the only great investments. See Fastenal, Altria.
Dividends can play a huge role in long term compound returns. Altria being case in point.
In future episodes of Telltales we plan to review some of the characteristics of the companies that have been successful at compounding value over the long term. We will also review IPOs from the last year, so here is a little data to chew on in the meantime...
There were 913 IPOs in the last 12 months (as of 8/14/2021) on the major US exchanges.
Broken down by sector, Financial Services dominated from this perspective, as approximately half of all IPOs in the last year were shell companies (SPACs).
Finally, here's a list of the 60 largest companies (by current enterprise value) that IPOed in the last year (note: click the image to zoom in).
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