Dear Partner 👋

I hope you are doing well.

Today it’s time for another position switch in Our Portfolio:

• We are selling one company

• We are using the proceeds to add to two positions

Optimizing the Portfolio

The goal of Our Portfolio?

Having a portfolio we can be proud of.

Your portfolio should reflect your personality.
You should own companies that let you sleep well at night.

As a reminder, all Partners have access to Our Portfolio here.

The current CAGR since inception in October 2023 is unsatisfactory.

There is only one thing I can thing I can say about this: this return is way too low.

It’s bad. There are no excuses.

We should do better.

And you deserve better as a reader of Compounding Quality.

The entire Quality Investing style is in a selloff right now:

Here are some of the YTD returns of some of the best quality investors in the world:

• Chuck Akre: -16%

• Dev Kantesaria: -23%

• Bill Ackman: -25%

The average stock in Our Portfolio is down 12.7%.

In the meantime, my estimates indicate the intrinsic value went up by +11.1%.

I want to truly apologize to you as a Partner.

Times like this truly define you as an investor.

Times like this oblige you to think as a business owner and not as an investor.

Personally, I don’t feel worried about our performance.

I know the strategy works and should do well in the long term.

But I do feel bad for you as a Partner and all other Partners.

Especially for those who now consider switching to another strategy (or switch to passive investing).

It might be exactly the wrong time to do this today.

Just look at this chart:

The S&P 500 is reaching new highs and at the same time there are more stocks trading at lows than highs.

This is a very uncommon situation.

It usually happens when the market is reaching the top.

Yesterday, I received an email from someone who was considering joining Compounding Quality.

He asked me which return I expected going forward.

I told him the goal (as outlined in the Owner’s Manual in 2023), is to outperform the S&P 500 by 3% per year in the long term.

As the S&P 500 averages around 9% per year, you know our goal is to achieve a yearly return of 12% per year.

The answer of this reader?

Expecting a return of over 100% per year?

Greed is a strange beast.

It tells you something about the kind of market we are in today.

The entire market is momentum driven:

The last time quality underperformed the market by so much as today?