By Compounding Academy
In this issue, we’re continuing our Mindset SQUARED™ series by exploring the first practical step in the process: Screening — the simple method we use to narrow thousands of global stocks into a focused list of high-quality candidates.
Screening is where long-term investing really begins. It helps you avoid lower-quality businesses, stay focused on the strongest fundamentals, and dramatically increase the odds of finding true compounders.
Most investors start in the wrong place. They jump straight into analyzing a company before asking the more fundamental question: Should this business even be in consideration?
Screening fixes that. It helps you narrow thousands of global stocks into a focused shortlist of companies with the potential to compound over decades, rather than years.
This issue shows you how to apply a simple, disciplined screen so you spend time only where the odds are already stacked in your favour.
This is the starting point: reduce noise, eliminate lower-quality businesses early, and focus on companies with the financial strength, discipline, and resilience required for long-term compounding.
Most investors underestimate how much time they waste analyzing companies that will never become great compounders.
Weak balance sheets, mediocre returns on capital, poor cash generation — these flaws don’t show up in glossy company slide decks or earnings calls, yet they destroy long-term performance.
Screening ensures you begin in the right neighbourhood. Instead of fishing across the entire market, you’re fishing in a cleaner pond where every candidate has a higher probability of delivering stable, persistent growth.
It’s actually a mindset advantage as much as an analytical one. Screening forces discipline. It prevents emotional decision-making. And it stops you chasing whatever happens to be popular this quarter. This discipline is more important than ever right now with AI euphoria driving valuations well beyond underlying fundamentals.
Our screening approach is simple: identify businesses that show the hallmarks of long-term compounding.
Here’s what the strongest companies tend to share:
Return on invested capital (ROIC) is the clearest indicator of business quality. High ROIC tells you a company converts every dollar of capital into attractive profits, year after year. It is the financial signature of a business with durable advantages, efficient reinvestment, and disciplined management.
Just as importantly, we look for consistency, not one exceptional year. Sustainable ROIC over a decade is a powerful signal.
Remember, compounding relies on consistent rather than spectacular growth. High-quality companies grow through recessions, inflation cycles, and shifting trends. They don’t rely on perfect conditions.
Specifically we look for:
Compounding requires survival. Low debt, strong cash flow, and disciplined capital allocation give a business the freedom to reinvest, make acquisitions, innovate, and defend its moat.
Key indicators:
Strong financials protect against shocks and enable management to play offence when competitors are struggling.
Screening keeps you away from the companies that look exciting on the surface but lack the fundamentals required for compounding.
It helps you avoid:
It also protects us from our own instincts — the temptation to chase hype, react to headlines, or make decisions based on emotions rather than evidence.
The right screen removes 99% of the market for you. And that’s the point. You don’t need more stocks to analyze. You need fewer, better ones.
Screening is the gateway to the rest of the process.
If a company doesn’t clear these first hurdles, it doesn’t enter the quality assessment stage.
Each step saves you time and prevents you following weak opportunities down a rabbit hole.
And importantly, screening reinforces the mindset you need to invest well
It shifts your attention from noise to fundamentals — the traits that actually drive long-term returns.
To make this easier, we’ve already applied this screening process to build a library of high-quality businesses.
You now have access to:
Every company in that library has already passed the screening criteria — ROIC, growth, financial strength, and durability traits.
This means you can start not with 15,000 global stocks…
…but with a pre-screened universe of proven compounders.
Here are three simple ways to use this:
If you want to go deeper, explore our free Mindset SQUARED™ mini-course and browse the 50+ pre-screened one-pagers, a simple way to build your knowledge and strengthen your investment process.