Investors often talk about compounding and when they do - donuts and snowballs are often used as illustrations.🍩 The ring of a donut resembles the compounding cycle of retaining profits from the previous year to reinvest for the following year.❄️ And if animations are to be trusted, a ball of snow rolling down a hill can start small, but gradually becomes larger and larger, just like the compounding's snowball effect.In this post, I’ll explore how different Returns on Capital (ROC) and growth rates can impact the compounding process and explain why even small adjustments can create a huge difference in your returns over time.1. High ROC + Low Growth Rate: Flatline SnowballsWhile investors in compounders often emphasise the importance of consistently high returns on capital, they often negl

Here's a quick look at ATOSS Software...What are your thoughts?⬇️⬇️⬇️📈 Share price up 415% since 1999.ImageCash return on capital consistently above 20%, but also growing (currently over 60%).Image Free cash flow and dividends have both grown substantially over the decadesImage Pricing power is strong... the below is from my research note on ATOSS.Image Since 2020, the company's valuation has de-rated slightly, so is now at a more attractive valuation.ImagePS：Two things you can do to become a better investor:1. Limit the number of companies you own2. Limit how frequently you tradeThis forces you to only own your best ideas and to accept that there will always be an opportunity that you miss out on.

Here are four essential ratios for analysing companies:1. Growth. Consider both revenue and free cash flow. Consider both the short term and long term. Look for consistency. Consider the impact of buybacks on per share growth metrics.2. Margins. Look for margins that are widening over time, allowing FCF growth to outpace revenue growth. Consider each expense separately (e.g. COGS, R&D, CAPEX).3. Return on capital. Look for a consistently high number and a low payout ratio. Consider the company’s debt level and interest expense.4. FCF yield. Consider whether the growth rate justifies the valuation. Be mindful of stock-based compensation.What would you add?

Great quality investors need to understand competitive disadvantages... not just competitive advantages.Here are 5 to look out for:🚫 High Costs: Inefficiency drives prices up, making it tough to compete on price (think narrow margins).👤 Weak Brand Identity: It's hard to build loyalty if no one trusts you or even knows you.🐢 Slow Innovation: Falling behind in tech is a failure to adapt to change.🌍 Limited Market Reach: Without efficient product distribution, your growth is capped.🌐 Weak Network Effects: Without enough users, platforms struggle to add value and reach a critical mass.

Every investor should understand the difference between capital-light and capital-intensive, and asset-light and asset-heavy.⬇️⬇️⬇️🌱 Capital-light: Business requires minimal capital investment to operate and grow.🏦 Capital-intensive: Business requires significant investment into assets and infrastructure to operate and grow.📊 INSIGHT: Look for a low CAPEX / OCF ratio.💡 Asset-light: Business relies more on intangible assets than physical assets to operate and grow.🏗️ Asset-heavy: Business relies on physical assets to operate and grow.📊 INSIGHT: Look for a high Intangible Assets / Total Assets ratio.🔍 Note: Asset-heavy companies are often capital-intensive, needing significant CAPEX to maintain physical assets.

Here's a histogram of the $.SPX(.SPX)$ 's YTD share price returns.* Only 33% of companies in the S&P 500 beat the S&P 500.* The outsized returns have come from $Vistra Energy Corp.(VST)$ , NVIDIA and $Palantir Technologies Inc.(PLTR)$ .Invested in semiconductors? Then you might like these quality growth dashboards that I've put together for $Applied Materials(AMAT)$ $Cadence Design(CDNS)$ $NVIDIA Corp(NVDA)$ $KLA-Tencor(KLAC)$ ImageHere's a dashboard I've been working on to capture a ran

Here's a quick analysis of the cybersecurity company, $Qualys(QLYS)$ 1. Return on capital has been going up consistently, and now sits above 50%.Image2. FCF per share growth has been going up exponentially, and is growing around 20% per annum.Image3. This FCF per share growth has been the result of both revenue going up and expense margins coming down - suggesting the company is now operating at a higher efficiency.Image4. Their use of stock-based compensation has been pretty high (currently around 28% of operating cash flow). Qualys has been counteracting any dilution by buying back stock, hence a reduction in shares outstanding.ImageImage5. FCF yield is also currently at a decade high, in part to it being now down 38% since its Dec 23 high. What

Here’s the current portfolio.In the last 12 months, I have:Bought• Fortinet $Fortinet(FTNT)$ • KLA Corp $KLA-Tencor(KLAC)$ Sold• Alphabet $Alphabet(GOOG)$ $Alphabet(GOOGL)$ • ASML $ASML Holding NV(ASML)$ ImageI sold ASML in June. It will probably outperform long term, but my view is there are better opportunities in semiconductorsHigh capital expenditure. I’m currently trying to rebalance towards companies with lower CAPEX margins.My bull case for all the companies I own is the underlying quality of the business. KLA had a lower CAPEX margin than ASML, and from memory benefit R