The investable universe

You might hear investors referring to something called the “Investable Universe”. That is a fancy term for a list of companies, which have been researched and selected based on characteristics important to the investor. From there the company can be selected for inclusion in the portfolio.

The investable universe is not one thing, it means something different to each investor. 

We have been researching and building up our investable universe. At the moment it contains 31 companies. I expect it to end up somewhere between 50 and 100 companies in total.

It is harder than you might think to find extraordinary companies. They are rare. You have to analyse each company individually, you cannot merely screen for them on broad criteria. 

The value creation score

Once we have analysed them, we try to get them in some sort of order. Each company has dozens of metrics, none of which captures everything that you want to know.

To order them, we calculate what we call a “value creation score”. To get this score, we look at a company’s performance over a decade and assign a single number. We do this independently of the share price. In other words, we do not look backward at which share went up the most.

The value creation score is not out of 100, it is a number where bigger is better (we discussed the value creation score for Meta, Microsoft, Apple, Google and Visa here). 

New companies added to our universe

These companies have fabulous value creation scores. Mostly companies score below 10, including well-known brands like Nike, Pepsi and Starbucks. That gives you an idea of how good these new additions are.

Does that mean you should rush out and buy them? Not unless you do your homework first. Valuation is your first issue. Usually great companies are expensive and at the moment the markets are overheated. So, valuation needs to be considered before buying.

The second issue is related to company characteristics. Many of these create huge value and then management hands much of that value over to staff, at the expense of the shareholders. That also needs to be considered before buying.

Conclusion

These are exceptional companies. The way to use this list, is as a starting point for your own research.

If you would like me to analyse one of these companies in an upcoming newsletter, vote for it below. If there are enough votes, I will do a deep dive on it.

I would like to hear what you’re up to.

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