Compounding is one of the bedrock concepts of investing – “the ability to generate earnings from previous earnings”1. For us, “Compounders” are those companies that can internally compound their intrinsic value at a mid-teens annualized pace or better for an extended period of time, for example a company growing its business at a mid-teens pace will typically double its intrinsic value every five years.

These high quality companies usually have demonstrable track records of building wealth, generating high returns on invested capital as well as having strong internal reinvestment opportunities, and are run by management teams with unusually strong capital allocation abilities. This is a relatively rare combination.

Compounders are seldom available at classically cheap valuations, but account for the vast majority of the stock market’s long term returns. We aim to buy Compounders at sensible prices and then remain patient as the stock performance roughly tracks the wealth creation of the underlying business over time – “buy low and let grow”. We would sell if we felt valuations were becoming stretched or if we anticipated the compounding process was falling below our minimum threshold pace.

(Also see Close the Discount)


Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in net asset value and assume reinvestment of all distributions and are net of all management and administrative fees, but do not take into account sales, redemption or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This content is intended for information purposes only and does not constitute an offer to buy or sell our products or services nor is it intended as investment and/or financial advice on any subject matter and is provided for your information only. Every effort has been made to ensure the accuracy of its contents.