LongTrend’s core mission is to help investors understand what a quality stock looks like. There are many quality stocks to choose from. However, investors often don’t know where to start, or what to look for when they do. LongTrend’s goal is to showcase and explain these quality investment opportunities in one comprehensive place.
Here at LongTrend, we focus on buy and hold investing with a long term mindset. While we pay attention to valuation, our core approach is to focus on quality. Here, we believe Warren Buffett said it best in his famous quote:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
In the vast sea of potential investment opportunities, LongTrend believes that long term investing should be straight forward, make sense and that a relentless pursuit of quality should remain paramount. Investing is a long term game and timing the market tends to be a fool’s errand, so a focus on quality stocks that have proven their ability to generate consistent free cash flow and high returns is, in our opinion, the best way to stay ahead, or at least in the game! Further, we believe that the savvy investor should always build in a margin a safety through diversification. After all, there are plenty of fish in the sea…
1. Unique Assets – these are hard to replicate assets that give a company a strong and sustainable competitive advantage. These are sometimes obvious, but often not. A good example of a unique asset is a network of railway track. Replacing a railroad in this day and age would be virtually impossible, meaning the barriers to entry are very high. Also, rail has a permanent cost structure advantage relative to other “over-the-land” transportation alternatives which ensures a lasting and permanent demand for this service, so long as bulk goods like oil or grain continue to keep moving.
2. Compounders – these are companies with consistently high returns on invested capital. Compounders tend to have large and sustained operating margins and generally have low on-going capital requirements to sustain current operations, relative to the operating cash flow they generate. Often compounders are asset-light businesses, which allows them to re-invest earnings and cash flow in opportunities at high rates of return, compounding their share price higher over time.
3. Consistent and growing free cash flow – this is key. A business is in business to make money … or at least eventually make money! If a business can demonstrate its ability to generate consistent and growing free cash flow, then the business has options. These options include using discretionary free cash flow to: (1) pay down debt, (2) re-invest in the business, (3) acquire new businesses, (4) pay or grow a dividend and (5) buy back shares – all of these things tend to be good for shareholders. If a company doesn’t generate cash flow, it can’t do these things in a sustainable way, period. There are many quality stocks that have consistent and growing free cash flow and those are the ones we are most attracted to.
4. Visionary, disruptive companies with valuable technologies – this is harder to explain and contradictory to the above, but often there are companies that don’t “screen” well because they don’t look good on “financial paper.” However, intuitively, sometimes it just makes sense that these companies are valuable, or at least could be some day. We do buy and hold these types of companies, but at a reasonable weighting in the portfolio. We don’t want to miss out on the next cohort of future cash flow machines …
Curtis, the author and creator of LongTrend, is an early 30’s finance major who is passionate about the stock market and investing. A Canadian, for the past 9 years he has been working in the mining industry in progressively senior financial roles. In his spare time, he loves to research and uncover new long term investing opportunities and spend as much time as possible with his young family.