Of course, there are companies with very concentrated exposure that are very successful in their business, but our experience is that many of these companies carry unattractive binary risk characteristics that make them vulnerable. From this risk mitigation perspective, and with the goal of avoiding financial meltdowns, we have built a portfolio of a special group of publicly traded serial acquirers. A big part of winning big is losing small. As we will explain, the return prospects of our companies are very promising. The return enhancing approach With our risk reduction approach at the heart of our investment philosophy, it is interesting to meet investors - mostly private - who are invested in the same companies as we are. Many of these investors have come to the same conclusion as we have, but from a very different perspective - from the perspective of high returns. During 2021 we have been talking to US investor Chris Mayer, author of the book "100 Baggers: Stocks that Return 100-to-1 and How to Find Them". We highly recommend his book, which talks about the ingredients you need in stocks to find the ones that will yield 100 times your money. He has identified many of the same companies as us, but from a very different angle - the return angle. If you disregard the "lottery tickets" in the stock market - the companies that carry a lot of binary risk (think biotech, mining, etc.) - Chris Mayer says there are five ingredients you need in order to find a potential "100-bagger.": 1) 2) 3) 4) 5)
Size: Small to medium sized companies Quality: High return on capital Growth: In all dimensions: sales, margins, multiples Growth path: Decades of durability Valuation: It helps to buy at reasonable prices
If you look at the portfolio of REQ Global Compounders, many of our portfolio holdings share these characteristics. “I study great stocks, great businesses and great leaders – hundreds of them. I put in the reps to develop pattern recognition and then go find them when they are small. Great companies always trade at a premium because there is a scarcity of them” (Peter Lynch, “One up on wall street”)
Our fund holdings consist primarily of companies with small to mid-sized market capitalizations. The average market capitalization of the Fund is approximately $13 billion. The quality aspect of the portfolio is solid - the fund's return on equity in 2021 is approximately 20%.
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