Here's my mental model for understanding how value creation, pricing power, barriers to entry and switching costs all come together.VALUE CREATION: Profit growth requires selling more, raising prices and cutting costs.PRICING POWER: Raising prices requires pricing power. Customers only put up with price hikes if there is no alternative (unique product), if the alternative is lower quality (superior product), if the alternative is a higher price (cheaper product) or if using the alternative is inconvenient (switching cost).BARRIERS TO ENTRY: There is only no alternative if companies can't replicate their competitors. Competitors can't replicate if they don't know how (knowledge barrier), don't have the capability (capability barrier), don't have the resource (resource barrier) or aren't all

Here's how the holdings of Blue Whale Capital rank based on various metrics for quality and growth.Which do you hold?This is a list of 33 companies. I note their factsheet says they hold 28. So 5 of these companies are no longer held.It's a odd to see such significant exposure to gambling ( $Evolution(EPM)$ , $Flutter Entertainment PLC(FLUT)$ , $DraftKings Inc.(DKNG)$ ), tobacco ( $Philip Morris(PM)$ ) and oil/gas ( $Canadian Natural Resources(CNQ)$ ).Image

Over the last 15 years, quality investing has crushed value investing.• The MSCI's quality index has an average outperformance of 2.71%, compared to -2.32% for their value index.• Quality has outperformed in 11/15 years, while value only managed 5/1• Quality delivered the lowest volatility (SD=4.36%).Critics may argue that 15 years is a short time frame, but the consistency and lower volatility speaks for itself.Maybe, but most of the performance is free cash flow growth, which may continue into the future.ImageThe MSCI World Quality index has outperformed the MSCI World index 10 out of the last 14 years.Image

$Applied Materials(AMAT)$ supplies equipment to the semiconductor industry. Over the last 5 years AMAT has grown.But when we say a company has grown, what precisely does that mean?Companies have many parts to them. Each part can grow at different rates.Let's consider AMAT's growth over the last 5 years.Revenue has grown by 9.7% per annumGross profit has grown 10.5% per annumOperating profit has grown 11.3% per annumNet income has grown 17.7% per annumFree cash flow has grown 19.1% per annumFree cash flow per share has grown 23.9% per annumShare price has grown 29.0% per annumAs you work down the above list you will notice that the percentage growth numbers are going up.Companies with pricing power see their gross profit grow faster than their reve

Home Depot $Home Depot(HD)$ (GM = 34%) and Costco $Costco(COST)$ (GM = 13%) don't have the highest gross margins, but what their gross margins do have is low volatility.These are incredibly stable companies.Here’s a list of other companies with low margin volatility. $Relx PLC(RELX)$ $Genmab A/S(GMAB)$ $Esker SA(ESKEF)$ $Dollar General(DG)$ $Kesko OY(KKOAF)$ $Sage Group plc (The)(SGPYY)$ $AutoZone(AZO)$

Here are some of my favourites:- S&P Global and Moody’s $S&P Global(SPGI)$ $Moody's(MCO)$ - Visa and Mastercard $Visa(V)$ $MasterCard(MA)$ - Coke and Pepsi $Coca-Cola(KO)$ $Pepsi(PEP)$ - Fisher & Paykel and Resmed $Fisher & Paykel Healthcare Corp. Ltd.(FSPKF)$ $ResMed(RMD)$ - Cadence and Synopsys $Cadence Design(CDNS)$ $Synopsys(SNPS)$ - ADP and Paychex

What's the best part of the semiconductor supply chain to invest in?I ran some quality growth metrics for each part. Here are some helpful findings:- CAPEX: The highest capital expenditure is found in the fabs (so $Taiwan Semiconductor Manufacturing(TSM)$ $GLOBALFOUNDRIES Inc.(GFS)$). Although high levels are also found with chip designers.- SBC: High levels are found particularly with the EDAs (so $Cadence Design(CDNS)$ and $Synopsys(SNPS)$ ), and also some of the designers ( $NVIDIA Corp(NVDA)$ ).- ROC: High levels are found with the EDAs and equipment manufacturers.- Growth: H

Portfolio at the end of November 2024November performance: +8.8%YTD: 27.6%We began a new position in ATOSS Software. The top contributors to performance were $Fortinet(FTNT)$ and $Fair Isaac(FICO)$ . The top detractors from performance were $KLA-Tencor(KLAC)$ and $Applied Materials(AMAT)$ .FCF ROC = 38%FCF per share CAGR (5yr) = 24%FCF Linearity (5yr) = 0.94FCF Margin Expansion (5yr) = 6%FCF Yield = 2.73%ImageTake a look at the below table. AMAT and KLA have higher and more consistent FCF per share growth. $ASML Holding NV(ASML)$ generally has lower returns on capital and higher

What's the best MSCI Index to follow?Since 2010, the MSCI Robotics, AI & Cloud index has outperformed 13 out of 14 years.It's average CAGR is 22%, which is a 11% outperformance of the broader market, i.e. MSCI World.At the bottom we have energy and materials.ImageSome companies are in MSCI Robotics $NVIDIA Corp(NVDA)$ $Broadcom(AVGO)$ $SAP SE(SAP)$ $Apple(AAPL)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Microsoft(MSFT)$

What matters more - FCF growth rate or FCF yield?The correlation between the share price growth rate and the FCF/share growth rate is higher (left), than the correlation between the share price growth rate and the change in FCF yield (right).I used 10 year data for the $.SPX(.SPX)$ . $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2412(ESmain)$ ImageImageWhat I take from your chart is that over the course of 1 year the multiple impacts 46% of performance, which then drops rapidly to just 5% over 10 years. So yes, I think both charts are explaining the same thing. Over the short term, the multiple is just noise.

What are the highest quality companies in the Fundsmith/Smithson investable universe?I took the complete set of holdings from both funds and ran it through one of my custom quality filters.Here are the ones that rise to the top 👇🏼👇🏼Which do you own? $MSCI Inc(MSCI)$ $Microsoft(MSFT)$ $Novo-Nordisk A/S(NVO)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Apple(AAPL)$ $Fortinet(FTNT)$ $Visa(V)$ $Meta Platforms, Inc.(META)$ I

Here's four quality growth dashboards, covering: $Atlas Copco AB(ATLRF)$ $HMS Networks AB(HMNKF)$ $.IXIC(.IXIC)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ $E-mini Nasdaq 100 - main 2412(NQmain)$ $Veeva(VEEV)$ Which stand out to you?ImageYear 1 - you invest $20 and make $10Year 2 - you invest $10 and make $5Year 3 - you invest $5 and make $2.50Your ROC is 50%, but your annualised growth rate is -50%.That’s why ROC and growth both matter. Look for both.Year 1 - you invest $20 and make $10Year 2 -

What's happening inside $Estee Lauder(EL)$ ?I don't invest in consumer stocks, but this is an interesting one.- All measures of profitability are down over the last 5 years.- Return on capital has plummeted since 2019.- Margins have weakened as COGS and SG&A have gone up.- Leverage and cost of debt also up.Companies selling to other companies enter into long-term contracts, which can mean highly predictable and recurring revenue,While a fair number are seemingly more expensive than the S&P 500, the potential of these companies to continue growing their FCF at above market rates remains.Image