Editors’ Note: This article is meant to introduce Integrator’s new Marketplace service, Sustainable Growth.
Investors are often told that technology disruption has made the idea of ‘buy and hold’ a risky prospect. Moat sources such as distribution and brand are being made obsolete by newer and cheaper ways to get product to market. Well, what if it really were possible to actually hold a set of advantaged businesses riding long term secular trends to substantial long term wealth? Such an approach offers the promise of less active trading, less taxation leakage on investment gains and steady, regular compounding returns on investments.
Sustainable Growth: The path to long term wealth
The idea behind my new Marketplace service, Sustainable Growth, is to find these superior businesses that have a sizable opportunity where they can reinvest their earnings at high rates of return on invested capital and let the power of long term compounding do the rest. The presence of a structural tail wind that affords a competitively advantaged business the opportunity to invest with confidence for an extended duration of time is what provides investors with the luxury of sitting on these positions for years, allowing them to deliver multiples on invested capital.
Sustainable Growth in Practice
I have successfully deployed and executed the key principles behind Sustainable Growth on Seeking Alpha, painstakingly over the last 4 years via my Project $1M portfolio, a portfolio designed to outperform the S&P 500 and achieve $1M in 10 years. All holdings and position performance have been publicly tracked on Seeking Alpha since inception. The results at the half way mark to the goal, after nearly 4 years, speak for themselves, with many positions now valued at multiples on their original invested capital. However the key isn’t just identifying individual holdings, it is also successfully integrating them in a structured manner to achieve overall market beating performance
An example of the approach that I used is my purchase of Mastercard (MA) in 2015 for the portfolio. I realized that Mastercard was at the very early stages of a cash to digital payments cycle, which would have a decade long runway to play out. Mastercard also had exceptional financial discipline, and returns of invested capital above 40%. The combination of a business that was able to reinvest capital at high rates of return coupled with strong secular tailwinds was a recipe for strong wealth creation. Mastercard has returned 32% annualized since my initial investment.
I realized these same principles would be more powerfully leveraged on earlier stage businesses with strong financial discipline that were also able to leverage similar tailwinds. I invested in ProMedicus (OTCPK:PMCUF) in 2016, a business facilitating the digitization of radiology data, riding the wave of electronic health record keeping and data driven insights in radiology. The business was generating returns on invested capital of almost 30%. Promedicus has been a strong performer for the portfolio, with an annualized return of almost 88% since purchase.
How do I find these positions?
I apply fairly rigorous criterion in looking for thematic trends that have years to run. I then assess the level of unique advantage that any particular business may have in that industry, with a view to determining sustainability of the advantage. While ROIC is typically fairly indicative of this, an assessment of other unique characteristics or moat sources that will protect these high returns on capital is a material part of the analysis. I additionally overlay on top of this strong revenue growth and market traction, free cash flow generation, founder alignment and incentives and financial discipline. Ultimately, I look to acquire these business at a price that will provide robust return.
What will Sustainable Growth Subscribers receive?
This service is intended for retail investors who want to build significant wealth with a portfolio of growing, advantaged businesses that don’t require constant monitoring and frequent trading. While Project $1M took advantage of opportunities and trends almost 4 years ago, Sustainable Growth will apply the same techniques to building out a portfolio with the best positions today for both a Large cap portfolio, an Emerging Leaders portfolio and a cap agnostic, High Conviction Portfolio. Project $1M primarily executed these techniques for Large Cap businesses, far larger opportunities for material wealth creation exist using these techniques in the Small and Mid cap space. Subscribers to Sustainable Growth will receive, on a weekly basis
- Exclusive ‘Emerging Leader’ Ideas
- Regular Portfolio Updates
- Active Watch Lists
- Details of trades and my personal portfolio holdings
I am a venture capitalist and strategist by background, with several successful technology investments in the artificial intelligence and software space. I have also had significant experience as a ‘business builder’ in building emerging technology businesses from the ground up. The combination of these experiences provides me with a unique lens on the challenges and opportunities in considering high growth investments in public markets and evaluating the likelihood of success.
Take the next step !
I invite you to take a free, 2 week trial to Sustainable Growth. As a special incentive to join, a special introductory price of $210 annually or $26.25 per month will be offered for only the first two weeks after the service launch.
Disclosure: I am/we are long MA, PMCUF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.