Some thoughts on the new addition to my portfolio (2024)

Leonardo Da Vinci said that simplicity is the ultimate sophistication. As I get older, I realize that there is much more wisdom in those words than meets the eye. In the world of investing, there is a natural attraction for complex situations, for businesses that are difficult to understand. Some investors go out of their way to be the first to find an original idea, an idea exciting enough for them to be deemed intellectual geniuses. I know this because I have experienced it myself. There is no doubt in my mind that in investing today, complexity is the biggest distraction and the biggest hurdle to long-term success.

My favorite investment opportunities (and my most successful ones, I must say) are those that arise when a company that is considered extraordinary by everyone experiences some challenges. The business loses the support of many short-term investors, is punished by analysts and its popularity declines. I usually consider it a good sign when investors admit that the stock is cheap if you believe the FCF the business will generate in 2-3 years, but they are not brave enough to buy because it will take a couple of weak quarters for the fundamentals to get back on track. Financial myopia is the best ally for long-term investors.

I had been following this company closely for years and I have finally added it to my portfolio for the first time. It is already one of my top ten holdings, largely because it has many of my  most preferred qualities: it enjoys secular tailwinds, more than 80% of revenues are recurring, the products and services provided are critical for customers and its competitive advantages are increasingly durable. Besides, 50% of the industry is still made up of small and medium-sized companies, but should tend towards an oligopoly led by a few major players.

Temporary problems create unique opportunities for excellent companies that have time on their side in the long term. I think this is one of those opportunities, and I have been fortunate enough to invest in this company with the goal of earning double-digit returns for many years and protecting my family's purchasing power.