13 Years of Market Data Solved: The Only 3 Stock Types You Ever Need to Buy. (Plus: breakdown of our 248-stock watchlist)
OIJ #46 | Screening 248 Listed Businesses. A 20% CAGR over 7 years comes down to one thing: owning the right breed of business.
We’ve spent 5,000 days analyzing and investing in the stock market.
Over 13 years of charts. (This makes me feel old) Countless hours of earnings calls. Testing every strategy we could think of… from day trading to deep value.
And we’ve learned a few lesson along the way, the main one being that most stocks did absolutely nothing for our wealth. Some actually set us back years.
But we’ve realized 3 specific types of companies consistently make money.
Historically, this has been true 81% of the time (17 out of 21 cases) across the last 7 years.
Over the last seven years alone, we have compounded capital at 22% annually, built and successfully scaled a hedge fund from the ground up, and are now acquiring 100% equity stakes in exceptionally high-quality businesses.
This wasn't done with meme stocks, crypto, or by following the news… it was done simply by owning these 3 types of businesses.
After 5,000 days of testing, we finally figured out what actually works.
And it’s way simpler than you think.
Finally, A Strategy That Actually Wants You to Win
Before we dive into the review of these 248 screened stocks, you need to understand exactly why most retail investors lose money.
The market is designed to keep you trading.
Brokerages want you clicking buttons. News sites want you panicked. Wall Street wants you to pay fees. They want you focused on the ticker symbol rather than the business.
One bad headline and your ‘hot tip’ tanks. You’re always at the mercy of the noise.
At The Hermit, we do things fundamentally differently.
We don’t look at the stock market as a casino; we look at it as a collection of tangible businesses. Our ‘algorithm’ for winning isn’t based on a chart pattern… it’s based on Free Cash Flow, Moats, and Management.
As Charlie Munger famously said:
Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.
Not hype. Not timing. Actual performance of the business.
This changes everything. Instead of fighting a market that works against your emotions, you’re finally working with the math of compounding.
The strategy works. But only if you’re buying the right types of companies.
After reviewing our data, the patterns became crystal clear.
Not all companies are created equal. Some get tons of revenue growth but zero profit for shareholders. Others quietly mint millionaires for decades.
Here are the 3 types that actually move the needle, listed in order of effectiveness.
Type #1: The Toll Bridge Businesses
These are companies that own a piece of infrastructure or a service that the world must use. They charge a toll/fee every time someone makes a transaction or turns on a light.
Toll bridges work because they have pricing power. When inflation hits, they just raise the toll. They don’t have to reinvent the wheel every year.
High barriers to entry. You can’t just build a new global payment network or a new railroad overnight. These companies have a moat that protects your capital while you sleep.
Type #2: The Capital Compounders
These deliver one simple, actionable result: High Return on Invested Capital (ROIC). They take $1 of profit and turn it into $1.20, year after year.
Compounders position you for long-term wealth without needing to time the exit. They show relentless execution and usually have a flywheel effect where the bigger they get, the stronger they get.
Look for businesses with low debt and high margins. They aren’t just growing but rather gaining efficiency as they scale. These are the stocks you buy and forget for a decade.
Great examples currently at a discount are serial software acquirers which are able to redeploy capital from businesses into purchasing IP.
If you can consistently buy businesses that return 10% via recurring customers, and fund them using your own equity or debt that costs less than 10%, you’ve got a winner.
Please note that these must be specialists: one team dedicated to one activity.
Type #3: The Mission-Critical Monopolies/Oligopolies
These provide a service that is so integrated into a customer’s life or business that it would be a disaster to stop using it.
As you niche out, you will see the same handful of names come up repeatedly, meaning they are in a hard-to-disrupt monopoly or oligopoly situation.
As Peter Thiel says,
That is where you want to be
These work because they create emotional and operational stickiness. When a company relies on a specific software for their entire accounting or supply chain, they don’t leave.
A perfect example is Stripe, the payment processing platform for digital products.
Share your real due diligence, not just the highlights. Be honest about the risks. People invest in businesses they understand. These companies provide that clarity.
Why Everything Else Is Just Noise
We know what you’re thinking. “But what about AI startups? Penny stocks? Short squeezes?”
They get engagement. Lots of headlines and “paper gains” sometimes. But they rarely build lasting wealth. There’s a huge difference between a trade and an investment.
You can make 100% in a week on a “meme stock” and lose it all the next. Meanwhile, a Toll Bridge company grows 20% year after year, boring its way into a massive fortune.
We’re not saying never take a risk. But prioritize these 3 types.
They are your wealth engine.
How to Work With Us
Everyone knows how to save, but almost no one knows how to multiply.
Cutting back on expenses might pad your bank account, but it won’t change your life. Real wealth is built by putting capital into tangible companies with relentless execution for a long time.
The exact strategy we use at Hermit Ventures.
We understand that committing €100k to a partner is a massive leap of faith. But auditing a track record for the price of a dinner? $30? That’s just smart due diligence.
Before we move six figures together, we want you to see exactly how we think.
You’ve got two years of week-to-week track record published right here.
Explore our extensive body of work, check the math, and judge the execution for yourself. It’s the smallest investment you’ll ever make that has the potential to actually change your life.
Core Quarterly Screening
And for our valued Paid and Inner Circle members, the story continues with our latest screening of 248 companies.
We rated each one by potential on a 5-star scale and ordered them alphabetically by country.
For the 5-star potential companies, of which we found four, we outlined in a brief commentary exactly why we find them so compelling.