Really great article. I will add a couple critical things though. Nasdaq is one of the best performing assets over the last decade. Investors are right not to own Gold.
Nasdaq is down 99.9% against Bitcoin though. So being “proud of not owning it” is pretty stupid. 😆
Wonderful break down of Rochon’s annual letters! You have done an extraordinary job of organizing and communicating the KEY knowledge that one hopes to gain from studying the great investors. Have you considered doing the same with Nomad’s annual letters - Nick Sleep and Qais Zakarias’ mental models are timeless.
Wow thanks for that great comment Scott! It means a lot. Yes! Nomad’s is on the list as well together with the likes of Mark Leonard and of course the great Warren Buffett..might do that one in two blogs ;). I’ll probably do Terry Smith first and will def look into Nomad sometime soon. Thanks again for the kind words, appreciate it.
I personally really like his awards for his biggest mistakes. I've adopted the same process in my own investing. I look deeply at my biggest losers to see what I did wrong and how I can avoid repeating the same mistakes.
I'm paraphrasing something he said, but I really like how he said that if you were to reset your portfolio and create a portfolio from scratch, what would the holdings be? This exercise really prevents you from holding onto losers for too long. I've personally adopted this in my own investing.
Lastly, I loved his comparison of investing to gardening. I've personally made the switch to watering my flowers and cutting the weeds. Although it can be hard because when a stock goes down, the reward/risk improves.
Awesome that you adopted Rochon’s mistake analysis in your own process. Rochon doesn’t only look at his biggest losers, but mostly the ones he opportunities he missed (the loss due to omission). Such a wonderful concept. Rochon has beautiful analogies to investing, I love the link with art :)
Below is my simplication of what is stock investing:
The QualityGrowsIntrinsicCompound Investing Mindsets Dharma 122:
1.
The most important ratio is not the Growth Rate nor the compounding rate.
2.
In fact there are two, complementing each other.
The two most important ratios are ROIIC and ROIC.
Persistent Growth Rate and Compounding Rate are NOT a DRIVING FACTOR in essence but just an outcome arises due to the Persistent Profitability ROIIC ≥ ROIC > WACC Driving Factor Criteria in the Business Operations.
3.
ROIIC & ROIC are the Drivers and Parents of all Growths.
4.
Stock Investing, can be further simplified and concluded in one line of Driving Factor Criteria:
Persistent ROIIC ≥ ROIC > WACC
You can name it differently, such as quality investing, compounding investing, growth investing, value investing or profitability investing strategies, but they all point to the above single Driving Factor Criteria line.
The QualityGrowsIntrinsicCompound Investing Mindsets Dharma 123:
Excerpt:
He aims to find companies growing intrinsic value (EPS) 12-14% per year, twice the market average. Over many years (i.e. the long run), market performance will align with earnings growth, leading to outsized returns for Rochon’s high(er)-quality businesses.
open.substack. com /pub/mindfulcompounding/p/what-i-learned-from-every-annual?utm_source=share&utm_medium=android&r=2kb224
Comments:
1.
The statement has to add better clarity with more extensive elaboration:
Over many years (i.e. the long run), market performance will align with intrinsic value.
The intrinsic value growth will align with the earning growth in the following manner:
Giv
= (1 + Gni)²/(1 + Gic)
Giv
= Intrinsic Value Growth
Gni
= Net Income Growth
Gic
= Invested Capital Growth
Taking a 3 to 5 year average Growth approach would improve the accuracy as the Spiky Growth at a single year can be even out over the long run.
In the name of Peter Lynch and the Growth Relam, it is the PEG (Growth at reasonable price, GARP), P/E = G and PEGY (Growth plus dividend yield at reasonable price, GDYARP), P/E = G + DY.
iii.
In the name of Warren Buffett, Charlie Munger and the Profitability Realm, it is the PEROIC (ROICEPS at reasonable price, ROICEPSARP), P/E = ROIC.
iv.
Growth is an outcome phenomena produced by ROIIC & ROIC.
ROIIC & ROIC are the parents of Growth.
The parents cultivate the growth of their child with good foods.
Thank you for a great summary!
My pleasure!
Another great summary. Such a nice treat for me to read first thing in the morning! Thanks for the effort.
Great insights
Thanks Shankar! :)
Thank you for the effort. It will be helpful to serious long term investing practitioners.
Thanks! I hope so :)
Really great article. I will add a couple critical things though. Nasdaq is one of the best performing assets over the last decade. Investors are right not to own Gold.
Nasdaq is down 99.9% against Bitcoin though. So being “proud of not owning it” is pretty stupid. 😆
Wonderful break down of Rochon’s annual letters! You have done an extraordinary job of organizing and communicating the KEY knowledge that one hopes to gain from studying the great investors. Have you considered doing the same with Nomad’s annual letters - Nick Sleep and Qais Zakarias’ mental models are timeless.
Wow thanks for that great comment Scott! It means a lot. Yes! Nomad’s is on the list as well together with the likes of Mark Leonard and of course the great Warren Buffett..might do that one in two blogs ;). I’ll probably do Terry Smith first and will def look into Nomad sometime soon. Thanks again for the kind words, appreciate it.
Sounds great! Will be looking forward to it
Appreciate you sharing your notes! Great reference.
No problem, awesome that you got some value from it. We should thank Rochon (and maybe Buffett too)! ;)
Great piece! Thanks for putting it together!
Thanks for the comment! Appreciate it and glad it helped you somehow. Rochon is such a great thinker.
I personally really like his awards for his biggest mistakes. I've adopted the same process in my own investing. I look deeply at my biggest losers to see what I did wrong and how I can avoid repeating the same mistakes.
I'm paraphrasing something he said, but I really like how he said that if you were to reset your portfolio and create a portfolio from scratch, what would the holdings be? This exercise really prevents you from holding onto losers for too long. I've personally adopted this in my own investing.
Lastly, I loved his comparison of investing to gardening. I've personally made the switch to watering my flowers and cutting the weeds. Although it can be hard because when a stock goes down, the reward/risk improves.
Awesome that you adopted Rochon’s mistake analysis in your own process. Rochon doesn’t only look at his biggest losers, but mostly the ones he opportunities he missed (the loss due to omission). Such a wonderful concept. Rochon has beautiful analogies to investing, I love the link with art :)
great Luuk! amazing super investor!
Thanks! He’s one of the brightest for sure :)
It’s my pleasure Vinh, love the support! :)
Great insight!
Below is my simplication of what is stock investing:
The QualityGrowsIntrinsicCompound Investing Mindsets Dharma 122:
1.
The most important ratio is not the Growth Rate nor the compounding rate.
2.
In fact there are two, complementing each other.
The two most important ratios are ROIIC and ROIC.
Persistent Growth Rate and Compounding Rate are NOT a DRIVING FACTOR in essence but just an outcome arises due to the Persistent Profitability ROIIC ≥ ROIC > WACC Driving Factor Criteria in the Business Operations.
3.
ROIIC & ROIC are the Drivers and Parents of all Growths.
4.
Stock Investing, can be further simplified and concluded in one line of Driving Factor Criteria:
Persistent ROIIC ≥ ROIC > WACC
You can name it differently, such as quality investing, compounding investing, growth investing, value investing or profitability investing strategies, but they all point to the above single Driving Factor Criteria line.
The QualityGrowsIntrinsicCompound Investing Mindsets Dharma 123:
Excerpt:
He aims to find companies growing intrinsic value (EPS) 12-14% per year, twice the market average. Over many years (i.e. the long run), market performance will align with earnings growth, leading to outsized returns for Rochon’s high(er)-quality businesses.
open.substack. com /pub/mindfulcompounding/p/what-i-learned-from-every-annual?utm_source=share&utm_medium=android&r=2kb224
Comments:
1.
The statement has to add better clarity with more extensive elaboration:
Over many years (i.e. the long run), market performance will align with intrinsic value.
The intrinsic value growth will align with the earning growth in the following manner:
Giv
= (1 + Gni)²/(1 + Gic)
Giv
= Intrinsic Value Growth
Gni
= Net Income Growth
Gic
= Invested Capital Growth
Taking a 3 to 5 year average Growth approach would improve the accuracy as the Spiky Growth at a single year can be even out over the long run.
2.
But what is the Intrinsic Value formula?
That's your homework.
It can be derived from the formula above.
Restructuring both Dharmas in a more comprehensive and sensible narrative:
Intrinsic Value is the final product created by many direct, indirect, core and side factors in the business operational processess.
The ultimate goal of Investing is about the Intrinsic Value Base and its Growth.
The greatest influencer to Intrinsic Value and its Growth is the Persistent Profitability.
ROIC is chosen for it well defined structure.
Investing can be further condensed into the following two formulas in respect to the ROIC profitability realm, as follows.
i
Intrinsic Value Base Formula
= ROIC × EPS
ii.
Over many years (i.e. the long run), market performance will align with intrinsic value.
The intrinsic value growth will align with the earning growth in the following manner:
Giv
= (1 + Gni)²/(1 + Gic)
Giv
= Intrinsic Value Growth
Gni
= Net Income Growth
Gic
= Invested Capital Growth
Taking a 3 to 5 year average Growth approach would improve the accuracy as the Spiky Growth at a single year can be even out over the long run.
References:
i.
open.substack.com/pub/mindfulcompounding/p/what-i-learned-from-every-annual?utm_source=share&utm_medium=android&r=2kb224
ii.
In the name of Peter Lynch and the Growth Relam, it is the PEG (Growth at reasonable price, GARP), P/E = G and PEGY (Growth plus dividend yield at reasonable price, GDYARP), P/E = G + DY.
iii.
In the name of Warren Buffett, Charlie Munger and the Profitability Realm, it is the PEROIC (ROICEPS at reasonable price, ROICEPSARP), P/E = ROIC.
iv.
Growth is an outcome phenomena produced by ROIIC & ROIC.
ROIIC & ROIC are the parents of Growth.
The parents cultivate the growth of their child with good foods.