@Mujo @Rick good discussion, i am doing another ASA preso in September and i was trying to think of the easiest way to explain to non-investment people how to describe a quality company, and the best i can come up with is a company that can deploy more assets above its cost of capital, or simply can continue to invest and earn great returns. the past is a good indicator, but as you know, the crucial issue is identifying what drives those returns and whether they are repeatable into the future. That leads to a series of questions around secret sauce, competitive advantage etc.

What a great topic @Rick.

Love the use of patterns for your example and it reminded me of one of my tools I borrowed from Mike Kemp when he was with the Barefoot Investor. Always loved Mike's simple easy way of explaining his complex analysis of share market opportunities, particularly the following - his 60 sec initial screener (in this case using ARB as a great example)..

@lowway I have been looking back through Mikes work and have "Uncommon Sense" set aside for a reread.

@Rick good topic

This is harder to quantify, doesn't lend itself to spreadsheet and a little esoteric perhaps, but management patterns:

Founder/non founder leadership

Insider ownership/skin in the game

Communication style

I suppose an individual can be a pattern of sorts. Does a David Williams for example, bring a potential repeatable performance to each of the companies he's involved with?

Great stuff @Rick - @lowway and @Mujo - ARB has been a great investment for me - just sold them in June after holding them for 7 years. @Rick it's great to compare those Earnings and ROE trends - and look at companies who may well have peaked - like CSL who have produced excellent returns over the decades but whole ROE is certainly trending down now at a good clip suggesting that perhaps their future returns are unlikely to be as good as their past returns. Same could be said for DMP - in terms of returns likely being in decline.

PME is that example of a company that keeps growing into their past valuations, while their current valuations (value attributed to them by the market via the share price they are willing to pay) just keeps rising ahead of their present value, yet regardless of the fact that they tend to look expensive at any given time, they just keep on getting bigger and better and the share price just keeps on rising.

In terms of the ones with the best ROE trends - with rising earnings to match, SNL, XRF and LYL stand out to me as being very positive, with SNL being better than I thought they would be - they're hitting their straps now it seems. JHX isn't one that interests me but their ROE and earnings are certainly up there and trending well. DTL is one I have dabbled in in prior years but I always came back to low barriers to entry and not fully understanding their competitive advantage so I couldn't maintain high conviction with DTL - but they've done (and continue to do) very well indeed.

I knew WES was a great performer and a very solid company that has superb management, although they aren't as sexy as some of the up-and-coming stars of tomorrow, but those earnings and ROE trends underline to me why I should probably make some room for them in my SMSF once again - next time they drop down again (give me a window).

MIN is all over the shop, but that is because of (a) commodity price movements, and (b) their deal making, and what they own, and when, despite their underlying recurring revenue from their mining services division (mostly crushing and loading of iron ore). So I'm not sure we can really say that MIN has a clear downward trending ROE, it's more a function of where the iron ore price is and the fact that they've curtailed their lithium production compared to prior years because of the low prices. The trends are more relevant I think for companies whose main business model doesn't vary too much, where sales grow or shrink along with their earnings and ROE.

One interesting one is TNE (TechOne), another one I held for about 5 or 6 years up until last month - TechOne's ROE is in a clear downtrend (since 2019) and yet their earnings are still in a clear uptrend. Their revenue is growing - they have converted it all, or the vast majority of it, to recurring revenue - and their earnings are still growing, but are their margins shrinking? And does that matter too much if they can still grow earnings and pay higher dividends and achieve a higher share price? Time will tell. Can a company keep performing at that level if their ROE keeps going down? When the earnings are following the ROE down, like in Domino's (DMP's) case, it's a clear-cut case of "their best years are behind them" IMO, but I'm not sure about that with TNE - wary but not bearish on them just yet.

Codan is another interesting one - they've been one of my biggest wealth-winners in the past 7 years - buy low, sell high, and they've been in a process of transition with their Comms division moving from being a minor part of the business to last year producing the majority of their revenue and earnings, which was a good strategy due to the various headwinds they faced in their Metal Detection (MineLab) division; I don't currently hold them, because they could easily pull back if the market has factored too much growth in again and they miss consensus expectations with their report in August, but I'd be in like Flynn if they pulled back to $5 or below again. They got down below $4 in late 2022 on the back of their MineLab sales headwinds (mine detector and comms sales into Afghanistan, gold detector sales into Africa, and any sales at all into Russia) plus their well-regarded MD (Donald McGurk) retiring - and now their SP is more than triple those levels - in just 19 months - and still rising. I'd actually be happy to pay $8 for CDA shares - lumpy earnings and revenue so not easy to discern clear trends - but very good management - and very good products that they develop and sell - but I wouldn't be paying over $12/share right now for them.

But, Damn! LYL, XRF, SNL and DTL look SO good here!

Great contributions @Mujo @lowway @Arizona @Solvetheriddle @Bear77! At the end of this thread I’ll attempt to synthesis a summary of patterns that might help us identify wealth winners.

The only downfall with patterns is our brain is so powerful when it comes to pattern identification we start to see patterns everywhere…even when they don’t exist! Similar to Steven Covey’s Seven Habits example of the “Young Lady” or “Old Lady”, we might all look at the same picture and see something different! Sometimes that’s influenced by what we want to see, and then we can’t “unsee” it.

WES -

Every broker has that as a sell

Watchdog investigation on anticompetitive practice from Bunnings

But we are at 52 week highs

Might just YOLO on Wesfarmers ;)

Ha, now I'm really messed up @Rick ????