Here’s an investing process journal entry I really connect with. It has to do with focusing on quality, what that really means and how to avoid “looking for the next shiny object syndrome.” Or when boring becomes sexy.
I may build on this topic on a future post, but here’s the journal excerpt. It quickly captures a core principle that defines a way we hunt for Multibaggers for our substack.👇
A decision to invest with a quality focus mindset is fluid through time. Not every company checks every box, and that’s fine. The art is in recognizing where a business is heading, not just where it sits today. Some of the biggest winners come from spotting the shift before the rest of the market does.
TSSI PSIX ACFN PPIH FSI TGEN FEIM Are all stocks in our MSM Quality Index (MSMqi) that once had boring businesses that turned somewhat sexier. And they’ve all turned into Multibaggers, ranging from returns of 200% to 5,000%, in a relatively short period of time.
This quality factor, tracking companies for “change catalysts,” that have been around for a long time, I’m talking 20, 30, 50, sometimes 100 years… is one of the 10 quality factors that we monitor.
What’s also great about these types of set-ups is that you get this double whammy situation, where valuation multiples expand at the same time that earnings are growing. It’s a very powerful Multibagger scenario, one that Peter Lynch talks about.
You could build an entire investing career buying long-standing companies that are old as dirt, waiting for them to intersect with the right trend, that go on to hit multibagger home runs… without ever guessing which sexy startup will set the world on fire.
They already have industry/market leadership and loyal customers, giving them the opportunity to quickly take advantage of a trend… and do it profitably, sometimes without having to invest in tons of CAPEX.
I guess AI is one of those examples. Or a company might spin-off/sell/shutter a dead-weight lumpy, low margin no growth division to refocus on an underutilized high-growth recurring revenue segment. Or it might be a company taking a niche product that’s been steady for years and suddenly finds itself in the middle of a new demand cycle. These are the moments that turn “boring” into powerful Multibaggers.
As I am hitting the publish prompt to post this on our Substack, I’m already thinking of more things to add to this journal entry. I’ll let you know when that all comes together. Have a great rest of your day.
Maj
Excellent Strategy. I'll try to copy this strategy with Tesmec SpA, Strix Group plc and Kooth plc. Let's see what happens :-)