By Compounding Academy
In this issue, we’re kicking off a new mini-series exploring our Mindset SQUARED™ Framework – the structured process we use to identify, analyse, and invest in the world’s best compounding businesses.
We’re starting with the foundation of it all: Mindset. It’s what helps you stay calm when markets get noisy, stay focused when others panic and lose perspective, and stay patient long enough for compounding to do its job.
Markets are designed to test your temperament. They reward calm conviction and punish emotional reactions.
In this first edition of our Mindset SQUARED™ series, we explore what we call the right mindset — the foundation of all successful long-term investing. It’s what allows compounding to work, even when markets are volatile and emotions run high.
Compounding depends on time and consistency. But most investors sabotage it by letting short-term fear or excitement dictate their actions.
The “right mindset” helps you stay calm and disciplined when the market turns unpredictable. It acts as a mental anchor, reminding you to focus on fundamentals and long-term goals, not short-term noise.
When prices fall, you see opportunity — and don’t panic. When headlines shout, you stay objective. Over decades, this level-headedness becomes your greatest edge.
Small, steady gains grow exponentially over time. The world’s best investors understand that wealth doesn’t arrive in bursts – it accumulates gradually through consistency.
Companies that reinvest cash flow at high returns on invested capital (ROIC) — like Visa or Costco, demonstrate this principle beautifully. Their management teams behave the way great investors should: disciplined, patient, and focused on long-term value creation. The lesson for us as investors is simple — stay invested in businesses that think and act this way.
Compounding not only grows capital; it strengthens the mindset that keeps it growing. Each round of patience and reward reinforces good habits and builds the experience that helps you stay disciplined through the next cycle.
Even high-quality investments test your patience. Markets fluctuate, headlines distract, and volatility shakes conviction. But compounding only works when you give it time.
A disciplined investor focuses on process over outcomes – re-evaluating fundamentals rather than reacting to price moves.
When markets fall, this mindset turns emotion into advantage. As Warren Buffett reminds us,
The same principle applies inside great companies. The best management teams allocate capital thoughtfully, ignore noise, and focus on what drives long-term returns.
As shareholders, mirroring that discipline is what separates steady compounders from short-term traders.
The best investors think for themselves. They resist the pull of the crowd, anchoring decisions in evidence, not emotion.
In 2001, few believed in Amazon’s unprofitable e-commerce model. Those who focused on its expanding network, recurring revenues, and reinvestment discipline – rather than short-term losses – were rewarded exponentially. The same applies today: your edge comes from thinking independently and staying focused on fundamentals, not market hype.
More recently, Alphabet (Google) offered a powerful example. Earlier this year, markets were quick to label it an AI casualty, assuming newer competitors would erode its dominance. But investors who had done their homework, focusing on its core fundamentals, leadership in search, cloud, YouTube and financial resilience stayed patient. That patience has been rewarded: Alphabet’s shares have rebounded sharply, almost doubling from their April 2025 lows.
Independent thinking isn’t about being different for the sake of it; it’s really about trusting your own analysis when it’s backed by substance.
Noise fades, but fundamentals endure. Consistent profitability, growth, and resilience – these are the levers that truly drive long-term returns.
Investors anchored on fundamentals look through volatility and concentrate on metrics that matter: Sales Growth, ROIC, margins, cash conversion, and balance sheet strength.
When the market obsesses over short-term earnings, focusing on fundamentals lets you see what others miss – durable value creation. It’s the same discipline the best management teams apply every day – and the same mindset long-term investors need to mirror.
Turn these principles into habit:
Write down the four pillars; Understanding Power of Compounding, Discipline & Patience, Independent Thinking, and Focus on Fundamentals. Keep them visible on your desk, phone or wherever you will see them. Review them during turbulent markets.
Before reacting to volatility, ask:
Use our Business Quality Assessment (BQA) Checklist as a practical reference here, it will guide you through 22 questions that will keep your decisions based on fundamentals and knowledge rather than emotion. We include an example BQA template here and provide a plain template to download on our publications page!
Honestly, give it a try, and you’ll notice how much calmer and more disciplined you become when the market tests your patience.
Pick three of your holdings and assess:
Schedule fixed times to check markets, then step back. Replace market news (CNBC and Bloomberg especially) with company research or long-term case studies.
Many of the world’s great compounders such as like Costco, Assa Abloy and Alphabet exhibit all four traits of the right mindset in action: long-term compounding, disciplined management, independent strategy, and a focus on fundamentals.
Great investors share those same qualities – that’s why the alignment between company behaviour and investor mindset matters so much.
You can explore these businesses plus dozens of others in our free One-Pager Library and Business Quality Assessments, or dive deeper into our Mindset SQUARED™ Mini-Course, which expands on these mindset principles and how to apply them in your own portfolio.
In our next issue, we’ll move from Mindset to the first actionable step of our process – Screening – where we filter thousands of stocks down to a select group of high-quality, compounding candidates.
See you next time.