Have you ever wondered how to choose from the thousands of companies, the ones with
the best quality and the highest sustainable growth?
Today we will show you how to build a long-term investment strategy with above average growth
at very low risk.
As an example, Peter Seiler's fund, which is built on this investment strategy, has
generated 523% returns over the last 23 years.
That is 247% more than the MSCI World.
So if you are a stock investor who wants to achieve a higher return, a private investor
who wants to achieve high returns at low risk or just a stock market enthusiast, you should
definitely stay tuned, because today it is about how you can achieve long-term returns
with high-quality growth companies.
But before we dive deeper, hello and welcome back to our channel!
We are the finance nerds and we help hardworking people like you to achieve your financial
goals with the income you have by sharing our knowledge in personal finance such as
saving money, budgeting and investing, and show you how to make it work for yourself.
And with that being said, let’s start!
The goal at the end of this video should be that you are able to find the best stocks
in the world.
How exactly you can do this is explained in the 10 golden rules that will help you identify
stocks that can give you high returns at low risk.
But before we get to those 10 rules, what kind of stocks actually give you high returns
at low risk?
These stocks are called quality growth stocks.
What does that mean?
It means high quality growth companies that have a dominant position and operate in growing
markets.
The term was coined by Peter Seilern, who invests with his fund using this strategy
and who also developed this strategy.
It is important to understand that if you decide to use this investment strategy for
yourself, you will have to take your stock investments into your own hands and invest
time, but you can also expect above-average market returns.
In the following minutes you will learn what exactly quality growth stocks are, why quality
is more important than price, why dividend stocks are risky for this investment strategy
Get rich?
Fight inflation?
Retire earlier?
Whatever your goal is with investing, your investment strategy should generate as high
a return as possible while keeping risk low, because that way you'll reach your goals much
faster.
A rough goal might be to outperform the market.
The question is what does this mean?
On average it means 8.4% per year.
If we recall the example from the beginning, the average annual return with Quality Growth
stocks was 22% return per year and that is exactly the reason why we focus on this kind
of stocks.
Both factors, quality and growth, must always be present.
Quality Growth stocks always seem to be quite expensive in comparison, but quality is more
important than price.
Quality here refers to the fundamental data of the company, such as sustainable and secure
earnings, which means that there is less risk of insolvency, which reduces the overall risk
of a total loss of the portfolio.
This means that fundamentally strong growth stocks survive crises better, but not only
that, because Quality-Growth stocks also recover faster and usually emerge from crises even
stronger, because they have sufficient cash reserves and can flexibly develop new markets
in crises.
In addition, the investment strategy with Quality-Growth stocks is based on a long-term
time horizon with a long holding period, which is why you do not have to constantly restructure
your portfolio, which saves you time, money and above all nerves.
Now that we have talked about why we invest in quality growth stocks, here are the 10
golden rules that will help you identify them and also describe the two terms "quality"
and "growth" in more detail.
Before we turn to the 10 golden rules, a short personal experience: You will find quality-growth
stocks predominantly in developed and Emerging countries and rather less in developing countries.
The 10 golden rules are divided into 6 qualitative rules and 4 quantitative rules.
Let's start with the first 6.
The company needs a scalable business model This means that the company has an infrastructure
that can steadily increase sales and profits at stable costs, for example by entering new
countries or markets.
An example of such a company would be Mastercard.
2.
the company has been operating in an industry with above-average growth.
The first step is to identify such industries, such as the digitization industry, and then
to identify the companies that benefit most from this, such as the software developer
Dassault Systemes in this case.
3.
the company is a leader in its industry over a long period of time.
In order to achieve such a leading position in the market, a lot of money and time is
invested and these investments must be worthwhile and the companies will put a lot of effort
into keeping this position, which speaks for better returns.
In addition, this position gives them the advantage of being able to set prices.
4.
the company needs a long-term competitive advantage or better: several competitive advantages.
What could these advantages be?
Superior products, such as Adidas and Nike, or superior business models, such as Inditex.
5.
the company has strong organic growth.
This refers to growth in all phases of the business cycle.
Look here for companies that manage to grow and generate profits on their own, even in
an economic downturn.
An example of such a company is Estee Lauder.
6.
the company is broadly diversified geographically and in terms of customer potential.A broad
customer base reduces the risk of difficulties in individual markets and gives the company
a strong negotiating position against its production partners.
we now come to the 4 quantitative rules, which are now also a little more number-heavy.
7 The company has a high return on capital and at the same time a low capital intensity.
Now you are surely wondering what the heck is meant by this.
What is meant by this is that the company has a profitable business with low costs,
which therefore reduces the risk of permanent capital loss.
This is also the reason why dividend stocks do not fit with this investment strategy,
because dividends are payments from the profits generated, which therefore do not stay in
the company to be reinvested or serve as a cash reserve.
8.
the company has a solid financial basis.
This means that the level of debt should be as low as possible, otherwise too much money
has to be used for interest payments.
This money can then no longer be invested.
This is similar to your private situation, which is why you should also try to build
up as little debt as possible.
9.
the company has a transparent balance sheet and group accounting.
There are many companies that try to make themselves look better than they are with
their annual reports.
To do this, they use accounting tricks to present the figures better.
A transparent balance sheet has as few extraordinary items as possible.
10.
The company has an effective management.
This includes effective controlling and corporate governance.
This is understood as good corporate governance and management should act in the interest
of investors.
This means acting with foresight, having a clear growth plan for the next 5 years and
increasing the value of the company in the long term.
In addition, the management should publicly acknowledge mistakes
The only question now is how you can apply the whole thing in practice.
And that starts with this: Find about 60 stocks that meet the 10 golden
rules and pick the 20 best ones.
That's enough and experience shows that once you have selected a stock, you will hold it
for 10-12 years before it no longer fulfills the 10 rules.
5 stocks that currently fulfill all 10 rules are: Rightmove, Mastercard, Estee Lauder,
Dassault Systemes and West Pharmaceutical Services.
And a little secret tip: Seilern, the inventor of this strategy, publishes the 10 largest
stock investments from his fund, which also follows this strategy.
At the beginning of 2021 they were: Nike, Mastercard, Accenture, Tyler Technologies,
Stryker, IDEXX Laboratories, Ansys, Edwards Lifesciences and Dassault Systemes.
And if you want to stop losing money while investing, watch the video in the middle now!
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We hope to see you in the next video.