I wanted to pass along an excellent video for you to watch or listen to in your spare time. It’s packed with great perspectives by Chuck Akre about how to approach stock picking strategies to find serial compounders. I love that he started his successful investment career later in life, proving that investing can be a developed skill at any point in one’s life.
Mr. Akre’s idea is straightforward: find companies that earn high rates of return on the money that management invests in their businesses, and you will come across stocks that increase by 2x, 3x, 4x, and more, otherwise known as multi-baggers. You can get clues on this rate of return by looking at a company’s net margins (sales minus expenses = net income, net income divided by sales = net margins).
You can also search for companies that have a high return on invested capital (ROIC), a calculation I will address in another post.