MSCI - Corporate quality meets growth

$MSCI (-6,26 %)

MSCI is a leading provider of equity indices (e.g. known as the creator of MSCI World), risk management tools and ESG data solutions used by fund providers, asset managers and institutional investors worldwide.

MSCI generates the majority of its revenue (58%) from index licenses - i.e. for clients using MSCI indices in their investment products such as ETFs, funds or derivatives. This income is mainly based on fixed, recurring license fees and is supplemented by volume-based fees: the more capital is managed via an MSCI product, the higher the fee. In total, around 97 % of revenues are recurring - This ensures a high degree of predictability and makes the business model particularly crisis-resistant.

Together with S&P Global $SPGI (-6,99 %) and FTSE Russell, MSCI dominates the market for equity indices - these three companies alone account for >70% of the market.

Put simply, MSCI will grow as long as the following points are true:

• Clients choose MSCI as their index provider (there are only the three major providers mentioned above to choose from)
• Customers' investment products based on an MSCI index receive an inflow of funds (e.g. due to the increasing trend towards passive investing via ETFs)
• Long-term rising stock markets

If you are interested, I can go into more detail about MSCI another time. Today I would like to illustrate the powerful mechanics of quality and growth using MSCI as an example.

Criterion 1: Company quality

Here are some points that make MSCI a quality company:

• Dominant market position in the index business: MSCI is one of the leading providers of equity indices worldwide and has established itself as the market standard with benchmarks such as the MSCI World or MSCI Emerging Markets. Many institutional investors and ETF providers use MSCI indices as a reference, which leads to strong customer loyalty and high switching costs.
• Pricing power: Thanks to the strong market position and deep integration of its products with clients, MSCI can regularly enforce price adjustments without risking high client churn. Customers are often heavily dependent on the indices and analysis systems.
• Recurring, predictable revenues: Much of the revenue is recurring and based on long-term license agreements or volume-based fees, such as depending on clients' assets under management (AUM). This means that revenues are very stable and easy to forecast - even in fluctuating market phases.
• High scalability: MSCI distributes largely digital and data-driven products, which means that new clients can be served with little additional effort. This leads to attractive economies of scale and rising margins with growing sales.
• Diversification of revenue sources: In addition to the index business, MSCI generates further revenue from areas such as ESG data, climate risk models, portfolio analysis and real estate valuation. This diversification makes the company less dependent on individual segments or short-term market trends.
• High management quality: The management pursues a long-term strategy with a focus on sustainable growth, efficiency and innovation. A high degree of discipline and clarity is evident in communication and implementation.
• Capital allocation: MSCI makes targeted investments in high-margin growth themes, makes complementary acquisitions and uses excess capital for sensible share buybacks. Capital allocation is focused, shareholder-friendly and growth-oriented.

Criterion 2: Growth

MSCI is growing steadily, albeit not explosively: since 2015, the company's turnover by an average of 11.5 % per year (see chart below).

Over the same period, the company has increased its net profits faster (19.5% per year) than sales - a classic sign of a high-quality, scalable company (see chart below).

Main reasons: Increased sales hardly lead to additional costs, better operational efficiency with increasing size, disciplined cost control and regular price increases.

MSCI was able to convert these profits very efficiently into free cash flow into free cash flow. Since 2015, net profit has increased by an average of 19.5% per year - free cash flow by as much as 20.2% per year (see chart below).

Free cash flow is the money that actually remains in the company after all expenses - i.e. what can be used, for example, to repay bank debts, buy back shares, pay dividends or take over other companies.

MSCI therefore not only manages to operate profitably, but also to convert a very high proportion of these profits into real money - a sign of:

• high capital efficiency
• a lightweight, digital business model with low capital expenditure
• and strong financial control of the company

Even more important than free cash flow, however, is free cash flow per share increased even more than free cash flow: by an average of 24.7% per year (see chart below).

The free cash flow per share shows how much real money flows to each individual shareholder per year. The fact that this figure is growing even faster than the total cash flow is due to the fact that MSCI has simultaneously reduced the number of outstanding shares due to its high profitability - through regular share buybacks (see chart below).

This is particularly attractive for investors: Even if you don't buy any additional shares, your stake in the company grows automatically because there are fewer shares of the company. This shows that MSCI not only works efficiently in operational terms, but also deploys its capital in a disciplined and shareholder-friendly manner.

The share price of a company follows the free cash flow per share over the long term. MSCI is no different: as mentioned, free cash flow per share has risen by an average of 24.7% per year since 2015, while the share price of MSCI increased by 25.0% per year over the same period (see chart below).

As the development of the free cash flow per share and the share price are almost congruent, this implies that the valuation of the company has increased only insignificantly. This can be clearly seen from the fact that the ratio between the share price and free cash flow (P/FCF) has risen only minimally between the end of 2015 and today (see chart below).

In other words: the rise in MSCI's share price is predominantly due to more sales, higher profits, higher cash flow and share buybacks, and not due to a rising valuation - which is positive. In fact, if investors give the company a higher valuation for the free cash flow per share that the company generates, then this actually offers potential for a higher share price.

Over the long term, MSCI's strong operating performance has clearly outperformed an index such as the S&P 500 ("SPY") clearly outperformed (see chart below).

In the last 5 years, however, the S&P 500 ("SPY") the nose ahead (see chart below).

On the one hand, this speaks for the the outstanding quality of the S&P 500 as well as for a potential for MSCI to catch up - provided that the company continues its successful operating performance in terms of sales, earnings and cash flow.

Do you have MSCI in your portfolio? Are you thinking about buying the stock?

In uncertain times, it is important to keep a watchlist so that you can pick up stable shares at bargain prices. I hope we go down a few more levels, another -20% would be nice, even if the short to medium-term price losses hurt.

I currently have almost 30 stocks on my watchlist, some of which are attractive in terms of price, while others are still far too high for me. I have not listed stocks that are already in my portfolio and that I would like to buy (in order of dividend amount):

Hercules Capital $HTGC (-5,99 %) or Main Street Capital $MAIN (-6,56 %)
Chevron $CVX (-8,09 %)

Vinci SA $DG (-5,04 %)
United Parcel Service $UPS (-1,35 %)
3i Infrastructure $3IN (-1,64 %)
Iron Mountain $IRM (-6,35 %)
Micro Star International $MSS
Nextera Energy $NEE (-5,91 %)
Partners Group $PGHN (-8,16 %)
Itochu Shoji $8001 (-3,05 %)
Canadian National Railway $CNR (-0,97 %)
Svenska Cellulosa $SCA B (-3,81 %)
VAT $VAT
Investor AB $IVSB
Assa Abloy $ASSA B (-5,78 %)
Linde $LIN (-5,56 %)
John Deere $DE (-2,93 %)
Landstar Systems $LSTR (-0,4 %)
Dover Corporation $DOV (-4,73 %)
Alimentation Couche-Tard $ATD (-4,01 %)
ASML $ASML (-2,09 %)
Infineon Technologies $IFX (-8,33 %)
Sherwin-Williams $SHW (+0,59 %)
Tencent $700 (-6,2 %)
Microsoft $MSFT (-2,36 %)
S&P Global Inc. $SPGI (-6,99 %) or Moody's Corp. $MCO (-8,29 %)
Visa $V (-6,9 %) or Mastercard $MA (-7,72 %)
Ferrari $RACE (-3,06 %)

Which stocks do you have on your watchlist?

#aktien
#watchlist
#crash
#stock
#market

Nvidia $NVDA (-7,25 %)

Novo Nordisk $NOVO B (-6,66 %)

Microsoft $MSFT (-2,36 %)

ASML $ASML (-2,09 %)

Intuit $INTU (-5,41 %)

Airbnb $ABNB (-5,32 %)

Amazon $AMZN (-3,47 %)

MSCI $MSCI (-6,26 %)

S&P Global $SPGI (-6,99 %)

LVMH $MC (-4,14 %)

Nike $NKE (+3,05 %)

Hims & Hers $HIMS (-7,52 %)

AMD $AMD (-8,01 %)

The Trade Desk $TTD (-5,16 %)

Do you see it similarly? Are you currently holding one of these shares?

The geopolitical tensions between the USA and the EU and the growing discussions about an EU armyand more independence in terms of security policy make the topic of defense spending extremely exciting. I believe it is very likely that Europe will invest massively in this area over the next few years - a clear catalyst for the defense industry.

I find the S&P $SPGI (-6,99 %) Developed BMI Select Aerospace & Defense Indexwhich BlackRock $BLK launched as an ETF a year ago. Alternatives such as VanEck and HANetf also exist, although the latter Palantir
$PLTR (-11,65 %) in the portfolio - still too early for me.

Anyone looking for an opportunity to profit from Europe's rearmament and the changes within NATO should definitely keep an eye on this sector.

$DFND (-9,34 %)

ASML $ASML (-2,09 %) (semiconductor equipment)

Visa $V (-6,9 %) (payment transactions)

Mastercard $MA (-7,72 %) (payment transactions)

Moody's $MCO (-8,29 %) (credit ratings)

S&P Global $SPGI (-6,99 %) (credit ratings and indices)

Hermès $RMS (-4,6 %) (luxury goods)

Fair Isaac Corporation $FICO (-6,29 %) (credit scoring)

Coca-Cola $KO (-3,58 %) (beverages)

Apple $AAPL (-6,8 %) (consumer electronics and technology)

Nvidia $NVDA (-7,25 %) (AI and GPUs)

Also also worth mentioningbut not in the top 10:

Transdigm $TDG (-8,47 %) (aerospace)

MSCI $MSCI (-6,26 %) (financial services)

Cadence $CDNS (-6,34 %) (EDA software)

Synopsys $SNPS (-6 %) (EDA software)

Ferrari $RACE (+0,02 %) (luxury cars)

What do you think? Have I forgotten an interesting company / share?

Next week won't be boring either 🫡

There's something for everyone 😁

What numbers are you looking forward to? 🧐

$MCD (-4,77 %)
$VRTX (+0,82 %)
$KO (-3,58 %)
$SPGI (-6,99 %)
$VRT (-11,98 %)
$PANW (-6,21 %)
$CVS (-4,46 %)

$MEDP (-7 %)
$ACLS (-4,64 %)
$THC (-8,75 %)
$TTD (-5,16 %)
$CSCO (-3,89 %)
$APP (-15,44 %)
$HOOD (-9,32 %)
$DE (-2,93 %)
$AMAT (-5,46 %)
$ABNB (-5,32 %)

Hey everyone,

I'm still relatively new to the market & have been investing since the beginning of December. So far I have created four savings plans $IWDA (-5,63 %) , $AAPL (-6,8 %) , $SPGI (-6,99 %) & $NVDA (-7,25 %)

I've also experimented a bit with individual shares to get a feel for the market and to show some activity. However, I'm lacking a bit of a real strategy to really make a difference ^^

Do you have any tips that would benefit a beginner like me & that I should pay attention to? For example, tips on how to build up a really well thought-out strategy, which is not really the case for me at the moment :)

I'm looking forward to your experiences & opinions!

In 2024, a lot has happened for me financially. I started investing around the middle of 2021. As I come from a family in which investing in the stock market was rather frowned upon (my parents invested in car manufacturers in 2000, which then slipped in 2001 just like everything else and they realized the losses), I only dared to start with small amounts bit by bit on an ETF basis in 2021. Financial flow classic 70% MSCI World ETF and 30% MSCI EM. The good thing about this was above all building up the automatism of investing money steadily and not waiting until the end of the month.

However, in 2024 I started to look more closely at the topic of finance, sometimes watching Berkshire conferences with Warren Buffett and Charlie Munger and realized that I was interested in individual stocks and would like to own Apple (shares) myself, for example. In February 24' I then looked at my EM position and saw that the position had been more or less at 0 since '21. So I sold just under €1000 and put it into Apple. And no, I didn't calculate the intrinsic value of the share first and didn't know at the time that Apple would be launching devices with AI at the end of 2024. I myself work in the field of software engineering/data science and if someone has the choice, you actually always take the Macbook over Windows computers. But that's another topic for debate :)

The Apple shares then performed really well even after the purchase and I was fascinated by the fact that I generated more unrealized profits with a single share or 6 Apple shares within 2 months than with the EM in 4 years. (I'll come back to EM later)

From March onwards, I suspended my savings plan in the ETFs and simply put the money in my Scalable clearing account instead. I didn't know what exactly I wanted to buy now, so pretty much from mid-24' I started to dive more into investing and how to analyze stocks. I had already studied discounted cash flow analysis in my bachelor's degree, back then in the subject of finance with a 3.0 :D. So I built an Excel spreadsheet and started using DCF models to calculate the intrinsic value of shares.

But what exactly should my strategy be when buying shares?

I mean, I already liked getting a dividend from Apple, so did I want to pursue some kind of dividend growth strategy? Should I go for "fast growers" as Peter Lynch would say? But should I then also add so-called "stalwarts" (dividend stocks) and "asset plays" (stocks with very expensive inventories, for example, or investments and cash whose book value is well below their actual value) to my portfolio, as he advises?

"Only buy something that you'd be perfectly happy to hold if the market shut down for ten years" - W. Buffett

Long-term focus

My investment horizon is over 10 years, so it is important to me to have some kind of predictability of income from the companies I want to buy. It was also important for me to be patient when buying from the outset and to allow some time to pass in order to check whether an investment thesis holds up over quarters.

Quality

I focus exclusively on companies with a leading position in their respective industry, either number 1 or number 2 in the respective sector with a large market share. The important thing here is that growth should be primarily organic. This means that the company should either simply build good, irreplaceable products that customers love and therefore remain loyal to, or simply be so influential that they can simply raise their prices without really losing customers ("pricing power" like Apple)

Concentration

Especially for someone coming from the financial flow school where the more diversified the investment, the better, it was hard to get used to this element. The investor Dev Kantesaria, who has successfully managed Valley Forge Capital for years and whose philosophy is also based on mine, once described this very aptly in an interview: "Why should I invest in my 25th best investment idea?". Accordingly, my goal is only to invest in a maximum of 15 individual stocks - I can't even manage to regularly check more in my free time and check whether the investment thesis still holds up.

Discipline

With the Emerging Markets ETF, I have held a position in my portfolio for several years purely out of conviction that this investment in emerging markets will work out in the long term. I also want to hold my stocks with the same conviction that they will perform well over the long term. In addition, I usually invest in companies when their intrinsic value suggests a margin of safety of at least 15-20%. For example, there was a slump in Alphabet shares in the summer with the unrest that Alphabet might be split up. The share was worth around €150 at the time. All of Alphabet's individual businesses have a combined intrinsic value of €250-300. Also related to this strategy element is that I don't really touch individual sectors that are associated with large research and development costs, for example, unless I really know my way around them. So I avoid biotech companies because I hardly know anything about them, but I invest in tech companies because I work in IT myself.

So I look for companies that are quasi monopolies in their respective industries, with strong market shares and a large moat due to irreplaceable or hard-to-penetrate products and a solid margin with a focus on steady free cash flow growth.

So why do I actually have the Emerging Markets ETF?

I asked myself this question and then promptly took another look at just ETF to see which stocks are actually in it. The top 10 holdings accounted for almost 25%. Why is that important? Some people always complain that the Magnificent 7 have such a high share in the S&P500, also slightly more than 25%, but this is usually due to the fact that companies are often weighted by market capitalization. If you then take a closer look at the top 10, 5 of them are Chinese companies. In general, China accounts for just under 25% of the ETF share. Chinese equities are not bad per se, there are some very good companies. However, the constant intervention of the government is a problem, laws can be changed overnight and a company becomes obsolete, or Mr. Ma, the CEO of Alibaba, simply disappears for a few months after having expressed mild criticism of government officials in a speech. These characteristics go against my strategy as formulated above, which is why the EM ETF was thrown out completely in July.

I then slowly tried to build up my individual positions towards the end of July, primarily $CRM (-5,08 %) , $ASML (-2,09 %) , $MSFT (-2,36 %) , $BKNG (-2,79 %) , $GOOG (-2,49 %) , $V (-6,9 %) and $AMZN (-3,47 %) . On August 5 there was a small correction, I think it was due to the "Japanese carry trade". That week I made another big purchase, very happy not to have invested all my freed-up EM capital at once. As a result, I was able to invest heavily in Amazon and Alphabet and make them my largest single positions.

Overall, I am very happy with the decision. I am aware that the last stock market year was a very good one overall and that you shouldn't be deceived by appearances. Things will probably not always go so well. My third-largest single position, in which I was in the red at just under €1500 in the meantime $ASML (-2,09 %) is good proof of this. Nevertheless, this company is a virtual monopoly in the chip manufacturing sector and will most likely remain so for the next 10 years. Therefore, I can only shrug my shoulders and look at the reports from the Magnificent 7, which are constantly expanding their data centers and in some cases were unable to meet demand in the last quarters of 2024! But there are already some good articles on this here on getquin. A new addition at the end of '24 is $UBER (-6,53 %) I will also be steadily expanding my position there, and the watchlist also includes $MELI (-4,71 %) , $MCO (-8,29 %) , $SPGI (-6,99 %) , $CAKE (-1,65 %) and $AMD (-8,01 %) for 2025.

To summarize:

Portfolio performance: 31% vs. S&P500 25%

Invested capital: approx. 22,000 euros

Portfolio value growth: approx. 42,000 euros

Goals for 2025:

• 30k invested (a large crypto cash-out will take place with approx. 20-30k, not included in the portfolio)
• Beat the S&P500
• Increase portfolio value to 150k
• Sell $TTWO (-6,11 %) (GTA 6 bet, but by the time this appears it feels like you've already done 10x in other companies)
• expansion $SPGI (-6,99 %) and addition of $MCO (-8,29 %) (credit rating duopolies)