Warren Buffett’s investing track record has been approximately 20% since he took control of Berkshire Hathaway, the performance has been impressive given the fact that Berkshire Hathaway has been through multiple recessions, inflation, the financial crisis, the pandemic, etc. He has consistently achieved this result simply through individual stock stocking and letting the magic of long-term compounding take place.

The cohort of Canadian companies that can compound at an annualized rate of 20% for 20 years is small. In terms of compounding results, a 20% in 20 years would result in a roughly 38x return on the original investment, and this is an extremely high bar to achieve. However, Investors only need to have one or two of these winners to have a life-changing fortune from investing. This screener will look for companies that have achieved an annualized rate of 20% in the last 20 years.

Below we have screened for companies with the following criteria:

• Market cap larger than $50 million
• Return in the last 20 years of at least a 20% compounded annualized rate
• These companies’ 10-year Earnings before interest and taxes (EBIT) growth rate on average

Here is the screener:

The criteria for the screen are simple as we screen companies that are over $50 million in market cap, these companies do have decent operating track records for investors to evaluate, and they have larger trading volumes, which allow investors to acquire positions more comfortably. Secondly, we screen for companies with at least a 20% compounded rate of return in the last 20 years, which is the main theme of this blog. Their 10-year EBIT growth rate along with their returns on equity (ROE) recently, may give investors a good picture of whether these companies continue to be great companies that could qualify as a long-term holding.

The results we find in this screener are quite interesting. Capitalism is extremely competitive, and competition tends to kick in soon if companies earn favourable returns on their investments. However, these long-term winners usually keep winning - there is a structural reason why these companies have been successful for so long. The job of the investor is to understand what they are and assess whether they are sustainable for another 20 years.

Also, we think what matters with these very long-term holdings is the quality of the business and management team. Although valuation is important, the time and resources are better spent on ensuring these companies are likely to remain great for the long term, rather than trying to be accurate and add value by determining whether the valuation is currently 5%, or 10% undervalued/overvalued. Lastly, the other critical skill and mindset that investors need to be prepared for, if they have been lucky and skilled enough to own these businesses early, is investors need to be comfortable owning them through thick and thin even when they appear to be slightly overvalued. It is not in the buying, but holding that is hard to implement.

The beauty of small-caps have been demonstrated here. Despite generating phenomenal returns over a long period of time, these companies are still relatively small in the grand scheme of things, and can potentially generate attractive returns in the foreseeable future.

The screener came up with eight names, members will recognize some of the names that we cover in our Model Portfolios and coverage lists such as Hammond Power Solutions (HPS.A), Descartes Systems (DSG) and Boyd Group Services (BYD).

Again, these companies on the list are not recommendations but a starting point that helps investors generate potential investment ideas and strategies. Investors can view our previous screener blog here.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.