Hi Partner 👋

Welcome to this week’s 📈 free edition 📈 of Compounding Quality. Each week we talk about the financial markets and give an update on our Portfolio.

If you’re not a subscriber, here’s what you missed this month:

1. 10 Stocks to own forever

2. Best Buys March 2024

3. Update ETF Portfolio

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Do you know how Compounding Quality started?

On a Friday night, I was staying at my childhood home because the day after one of my best friends had his bachelor party.

I was bored and didn’t know what to do on that particular evening.

Why not create an anonymous account on Twitter?

I thought it would be cool to say whatever I wanted about the stock market at any given time (at the time I was still working in the Asset Management industry meaning that you aren’t allowed to speak openly about investment-related topics).

So it happened and I created an account on Twitter.

Now I needed to find a name. I thought for 30 seconds and named the account Compounding Quality. It beautifully sums up the strategy:

Today, Compounding Quality has more than 500,000 followers on social media and more than 220,000 readers on its website.

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When did you start investing?

When I was 13 years old, on a nice summer evening, someone told me about the stock market.

You could make money without having to work for it?

This was one of the most beautiful things I had ever heard. I remember the conversation as yesterday as it sparked a light in me. My passion for investing was born on that summer evening.

The day after the conversation, I set up a brokerage account (via my parents as you aren’t allowed to invest in stocks under age 18).

After a few days, the account was set up and I transferred the hard-earned money I earned that summer to my investment account.

But there was only one small problem…

… In which stock should I invest? I didn’t know anything about stocks.

‘Luckily’ the broker I used had a top pick list and they recently added a new company to this list. It was a local company active in the production, storage, supply, and transportation of oil and gas.

The people who managed the top pick list were so-called experts.

They should know what they were doing right?

So I blindly followed them and bought that specific company with all the money I earned that summer.

After 1 year I sold the stock…

… with a loss of 60%.

And you know what? It’s the best investment I’ve ever made.

My worst investment ever has become my best investment ever.

After selling my first investment (which was very painful), I could beat myself up.

How could I be so stupid?

When something like this happens to you, you can do two things:

1. You conclude investing isn’t something for you and you give up

2. You promise yourself to never make the same mistake again and educate yourself

I decided to choose the latter.

From that point in time, I became completely obsessed with the stock market.

Starting from age 14, I did the following:

• Read all financial newspapers every morning

• Read at least 1 finance/investing book every week

• Listen to everything I could find about investing on YouTube, the radio, … for several hours

My ex-girlfriend once said to me that I loved the stock market and books more than I loved her. She was probably right as we broke up a few months later.

What you can learn from this?

Making many investment mistakes at the beginning of your investment journey is probably the best thing that can happen to you.

It’s way better to make a mistake with $1,000 than making a mistake with $100,000.

Failures are part of life. If you’ve never failed, you’ve probably never tried anything new.

The life of optimistic investors is beautiful in that sense. If you make a good investment decision, you make money and if you make a bad decision, you’ll learn something new.

As Thomas Edison beautifully said: “I have not failed. I’ve just found 10,000 ways that won’t work.”

In my office, there still is a framed picture of that first investment which I sold at a loss of 60%.

I do this to remind myself that you should always stay humble.

How I got to Quality Investing

My story about how I got to quality investing is quite funny.

I used to work as a Professional Investor.

Before I joined the industry, I considered myself a pure value investor in the sense that I liked to buy cheap companies based on traditional metrics such as the price-to-earnings ratio, price-to-book ratio, and so on.

One thing I didn’t do well before I joined the industry?

I suffered from home bias, meaning that almost my entire portfolio was invested in companies located in Belgium (the country I live in).

Home bias is not good for investors, and it also resulted in another problem for me.

When I joined the asset management company, I wasn’t allowed to own any companies located in Belgium.

Why? With our equity funds, we could influence the stock prices of these companies. This meant that you could buy the company on your personal account before buying it for your fund and you would benefit from that.

This is not very ethical. It’s even illegal.

As a result, I needed to liquidate my portfolio and rethink my entire investment strategy.

That’s when I started reading books like:

• Quality Investing (Lawrence Cunningham)

• How to Pick Quality Shares (Phil Oakly)

• Only the Best Will Do (Peter Seilern)

• Investing for Growth (Terry Smith)

• …

It immediately clicked for me.

I like Quality Investing so much because it completely makes sense to me to invest in the best companies in the world.

The essence is very simple:

1. Buy wonderful companies

2. Led by outstanding managers

3. Trading at fair valuation multiples

Quality investing is also the only investment approach where you can use a buy-and-hold approach.

To quote Buffett:

That’s a different approach compared to value investing.

When you invest in value stocks, you buy the stock when it looks cheap on fundamental criteria, and you sell it when the undervaluation has disappeared.

Once this happens, you sell the stock and you try to find another undervalued stock.

You do this again and again so from that point of view, value investors need to trade way more than quality investors do.

And as you know, trading and costs harm your investment results.

What separates Compounding Quality?

At Compounding Quality, there are no commercial incentives (except for the subscription fee).

Honesty and integrity are very important to me. I want to genuinely do the right thing.

And what’s even more important? We are PARTNERS in this.

We’re in this together. All my investable assets are invested in the Compounding Quality Portfolio.

If you do well, I do well, and the other way around.

Here’s what Charlie Munger said about the power of incentives:

So who are you?

Up to a few weeks ago, I ran Compounding Quality anonymously.

But as we are Partners in this, you have the right to know who I am.

Here’s some basic info to get to know each other:

• My name is Pieter Slegers

• I live in Belgium (Antwerp)

• I used to work for a Belgian Asset Manager

• Hobbies: running (I ran my first marathon last year),  lifting weights and reading books

This feels so good and liberating!

And remember… The best is yet to come!

Happy Compounding
Pieter (Compounding Quality)

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Whenever you’re ready

That’s it for today.

Whenever you’re ready, here’s how I can help you:

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Thank you for reading!

Email any questions to compoundingquality@gmail.com.

Pieter (Compounding Quality)

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Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Finchat: Financial data

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