10 Stocks For The Next 10 Years

Summary

• Investing in businesses for the next 10 years and beyond requires a specific mindset with a focus on consistent operating history.
• To celebrate the first anniversary of the App Economy Portfolio, I'm giving readers a glimpse into some winners of the service that are well suited for the very long term.
• The 10 stocks I'm sharing today have many traits that Warren Buffett is usually looking for when he selects an investment.
• The similarities? Strong leadership, high return on equity, high margins, growing free cash flow and EPS with consistency over the years.
• I believe these highly profitable and cash-flow accretive businesses are poised to deliver a market-beating performance in the next decade.
• Looking for a portfolio of ideas like this one? Members of App Economy Portfolio get exclusive access to our model portfolio. Get started today »

Investing for the next 10 years and beyond can sound like a daunting task. The longer your time horizon, the less you are likely to be able to predict accurately what the future may hold. You must think probabilistically to make sure the odds are in your favor.

Tasks with a significant degree of luck require a different discipline altogether. They are won over multiple iterations by obedience to a set of rules. In a strange way, what matters in games with a strong element of chance is not the outcome of any particular event, but the quality of your decisions. You win at chess through repetition. You win at poker and investing through mental toughness (Daniel Crosby, The Behavioral Investor).

This week marks the first anniversary of the launch of the App Economy Portfolio. The service offers a comprehensive solution to invest in businesses that benefit from the inexorable rise of the range of economic activity surrounding mobile applications.

The way I invest follows substantially several of Warren Buffett's tenets:

• Focus on the business, not the market, the economy, or investor sentiment.
• Look for a consistent operating history.
• Ascertain whether the business has favorable long-term prospects.
• Make sure that management is rational, honest and strategic.
• Focus on companies that have high return on equity and high margins.
• Accumulate shares at a price that can be justified by future earnings.
• Buy with the intention to hold for no less than 10 years.
• Don't sell unless you have a very compelling reason to.

The App Economy Portfolio goes beyond offering a thematic portfolio. An idea only has value when combined with proper implementation. My goal has been to offer an all-in-one service that combines all the key aspects of a successful investment strategy:

• Stock ideas with detailed business analysis and rationale.
• Live trade alerts showing in real time where I invest my own money.
• Full real-money portfolio shared in real time with allocations and KPIs.
• Best practices on asset allocation: geography, sector, size.
• Tips on portfolio management and building positions.

Why should you care? Because the portfolio has a 26% internal rate of return since I started tracking it at the end of 2014. That compares with 9% annualized return for the S&P 500 over the same period. These are real returns, not a back-tested strategy.

Despite officially launching on Seeking Alpha in September 2018 on the cusp of a ~20% market draw-down, the portfolio fared very well over the past 12 months, up 11% vs. 4% for the S&P 500 (SPY) (VOO).

I'm not chasing returns for the short term. My focus is on accumulating shares of great businesses when they trade on the lower end of their valuation spectrum and hold them for as long as I possibly can. There will be ups and downs, and I wouldn't be surprised if a draw-down of more than 50% occurs at some point in the next few years. Both Warren Buffett and Charlie Munger have seen their portfolios suffer from massive draw-downs multiple times over their lives. This approach is not for everyone, and only for those willing to invest money with a time horizon of 10 years or more.

This bring me to our topic du jour. 10 stocks for the next 10 years.

You guessed it, these stocks are existing positions or recommendations of the App Economy Portfolio. Many of them have already been outstanding long-term winners, but I believe they remain amazing investments looking forward. These 10 businesses only represent approximately a third of the portfolio, and I won't be discussing any allocation specifics as part of this article. Instead, I'll be focusing on what makes them unique and best-of-breed businesses for their shareholders.

(On an important side note, I believe firmly that what we invest in is intimately connected to what we stand for. There's no amount of cash flow or price appreciation that could make me consider investing in a company that profits from the sale of cigarettes like Altria Group (MO), sugary sodas like Coca-Cola (KO), oversells the benefit of opioids like Johnson & Johnson (JNJ) or worsens climate change like Exxon Mobil (XOM). There are enough amazing businesses out there for me to choose investments that are aligned with my values. Conveniently, none of these companies are contributing to or benefiting from the rise of the App Economy.)

The most successful investment philosophies are simple but not easy. There is a countless number of bearish thesis and news articles that would suggest you stay away from owning shares of the 10 businesses presented today, or stipulating that they are clearly overvalued on specific backward-looking metrics.

Let's go though all of them, from the biggest to the smallest.

Source: App Economy Insights

1) Apple (AAPL)

The biggest holding of Warren Buffett (25% of the Berkshire Hathaway (BRK.A) (BRK.B) portfolio at the end of June 2019) is an obvious winner of the App Economy and needs no introduction.

Apple has built a robust ecosystem on top of its hardware empire. Thirty percent of most of the transactions going through the iOS App Store go to Apple. The company is successfully transitioning from a product to a service company. Optionality remains one of Apple's strength with accessories and wearables focused on health, as well as a new forays into banking with the Apple Card, or entertainment with Apple TV+.

Source

A look at the important metrics discussed in the introduction easily explains Warren Buffett's strong interest in the company.

Let's look at Apple's business performance over the past decade.

Data by YCharts

• Return on Equity: Above 30% for the vast majority of the past 10 years and at its highest ever with 51%.
• Gross Margin: Very stable, currently at 38%.
• Profit Margin: Very stable as well, over 20% since 2010.

Data by YCharts

Apple has been a cash machine, increasing its yearly free cash flow from less than $20 billion in 2010 to $58 billion today.

• Free Cash Flow have risen by 550% over the past 10 years.
• EV to Free Cash Flow multiple has been oscillating between 10 and 18 for the most part of the decade. Currently above 16, this metric is in the high end of its long-term spectrum, but it remains a sound investment.

Data by YCharts

• EPS Diluted has grown by an astounding 804% over 10 years.
• If you needed a reminder of the fact that the share price of a business ultimately depends on the earnings per share, the chart above can help.

A look at the performance of a company over 10 years is a fantastic way to keep perspective. The main reason behind Apple's stock performance is not an expansion of its valuation multiples. It's the fact that the business has generated much more cash over time and saw its EPS explode higher.

While many investors focus on very specific news, such as the departure of Jony Ive or the potential regulation on App Stores fees, only those who can demonstrate second-level thinking will look beyond short-term negativity and maintain their position based on a long history of consistent performance.

Source

An easy way to evaluate the culture and leadership of a company is to look at Glassdoor. Thousands of employees provide a look into their company, an invaluable insight to gain confidence in management (and a fantastic way to separate the wheat from the chaff).

I have written before about the fact that the best places to work are beating the market by a wide margin, and Apple is one of them.

Apple represents 3% of the world stock market as of this writing. If you have less than 3% of your portfolio allocated to this company, you are virtually making a bet against it and you might be missing on one of the most resilient businesses in the world for the decade to come.

2) Alphabet (GOOG) (GOOGL)

Alphabet is another obvious winner of the App Economy.

As a platform provider, Alphabet owns an incredibly successful mobile ecosystem with Android and its app store Google Play, coming second to iOS in terms of revenue, but well ahead in terms of downloads.

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And Alphabet is so much more than Google Play. Morgan Stanley recently estimated the valuation of YouTube alone at $160 billion (about 20% of Alphabet's market cap). The upcoming big push in gaming with Stadia could benefit from its strong YouTube native implementation and disrupt a video game market worth $152 billion in 2019.

There's always something new in the making at Alphabet with future bets on Waymo and self driving cars, and the company is ingrained in our digital lives in a way that seems limitless. Chances are, you own a Gmail account, use Google Maps to find your way around and will "Google" anything that this article makes you think about.

And the numbers don't lie. Let's dig in!

Data by YCharts

• Return on Equity: Above 15% for the vast majority of the past 10 years and close to its highest ever with 20% as of this writing.
• Gross Margin: Very high at 56% (slightly decaying due to the wide range of new businesses added to Google's core business throughout the years such as hardware (Chromecast, Pixel) and other bets.
• Profit Margin: Very high as well, over 23% in past 12 months and rarely under 20% over the past 10 years, only disrupted temporarily by a one-time transition tax cost late 2017.

Data by YCharts

Google has also become an outstanding cash machine over time, from $8 billion generated in 2010 to $27 billion in the past 12 months.

• Free Cash Flow have risen by 253% over the past 10 years and are trending nicely upward.
• EV to Free Cash Flow multiple has been oscillating between 20 and 40 in the past four years, making the current ~26 the low-end of the spectrum.

Data by YCharts

• EPS Diluted has grown by a phenomenal 539% over the past decade.
• A one-time transition tax cost late 2017 is disrupting an otherwise perfect trend up and to the right.

And if the numbers weren't enough to convince you, Google benefits from an outstanding culture with Sundar Pichai lauded as a Top CEO on Glassdoor in 2019 just like most years before that.

Source

The specter of increased regulation looms for Alphabet, and its trajectory could be disrupted for reasons beyond its control. Fifty states just recently announced broad antitrust investigation of Google. But avoiding Alphabet as an investment has been a losing bet for years, and it could see its valuation continue to increase greatly along with its cash flow and EPS - even if the company ends up being broken up at some point.

3) Facebook (FB)

With 1.6 billion average users and 94% of its advertising revenue coming from mobile, Facebook is a behemoth of the App Economy that's nowhere close to slowing down.

Instagram alone was estimated to be worth more than $100 billion in 2018, if it were a standalone company. That's close to 20% of Facebook's market cap as of this writing.

Let's look at the numbers since the company became public in 2012.

Data by YCharts

• Return on Equity: Improving nicely since 2012 and above 20% in the past 12 months.
• Gross Margin: Very high at 82% and above 80% for the past five years.
• Profit Margin: Very high as well, over 27% in past 12 months and above 20% over the past five years.

Data by YCharts

Facebook has also become an outstanding cash machine over time, from close to nothing in 2012 to $17.9 billion in the past 12 months.

• Free Cash Flow has risen by 442% just over the past five years. Such a performance makes any backward-looking valuation metric almost useless.
• EV to Free Cash Flow multiple has been oscillating between 20 and 40 in the past four years. If it sounds expensive at first, the underlying business has turned it into a steal year after year. Likewise, 27 is on the low-end of the valuation spectrum of the company.

Data by YCharts

• EPS Diluted has exploded higher since 2012, reaching more than $7 per share in FY18.
• A recent drop in EPS is related to the inquiry of the FTC into the platform and user data practices, with an accrual of $3 billion booked in the Q1 FY19 and another $2 billion in Q2 FY19.

If you got caught up in the swarm of negative news around Facebook and its cyber security challenges, don't overlook the fact that Mark Zuckerberg will be likely regarded as one of the best CEOs of all time when all is said and done.

In an open letter to his first daughter Max, the 35-year old CEO pledged with his wife Priscilla to donate 99% of their Facebook shares, then valued at $45 billion, to the Chan Zuckerberg Initiative, their organization that focuses on health and education.

It's easy to forget the impressive lasting impact a company like Facebook will have on our society. Are the positives offsetting the potential abuses from bad actors? Maybe the jury is still out. But at its core, the company's mission is to bring the world closer together, and so far the core business has managed to survive every crisis, illustrating its strong resilience.

Source

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It might be only the beginning of regulation challenges for Facebook. But the ones we know of are well reflected in the current EPS of the company. Could it get worse in the short term? Absolutely. Is the underlying business one of the most profitable and cash-flow accretive in the world? A resounding yes!

4) Visa (V)

Visa is also one of Warren Buffett's holdings (about 1% of his portfolio). Just like its competitor Mastercard (MA), Visa is a business that's almost too good to be true, benefiting from our transition to a cashless society.

The rise of digital payment is a topic I covered previously. Despite significant changes in the past few years, the global financial services industry is still in the early innings of a major digital transformation. This movement is powered by fintech, which is the confluence of financial and technology-driven innovation. And Visa is one of the obvious winners.

Source

Visa and all mobile ecosystems discussed until now are intertwined, facilitating commerce and mobile payments across the world.

Let's look at the numbers of the past decade.

Data by YCharts

• Return on Equity: Improving beautifully over the past 10 years, reaching an astounding 42% in the past 12 months. The company has an appropriate level of debt (about twice its trailing twelve months FCF)
• Gross Margin: Extremely stable over the past decade, currently at 82%.
• Profit Margin: Extremely high at 53% and trending upward.

Data by YCharts

Visa has transformed from a business that was barely generating any cash in 2010 to printing more than $11 billion in the past 12 months.

• Free Cash Flow has risen by 70% just over the past five years.
• EV to Free Cash Flow multiple has been oscillating between 20 and 50 in the past five years. If it sounds expensive at first, you have to consider the kind of business you are paying for. Here again, backward-looking metrics are deceiving and you want to look at the upcoming decade to fully grasp the potential upside. With ~38 as of this writing, the multiple is in the mid-range of its spectrum.

Data by YCharts

• EPS Diluted has shot up 572% in 10 years, reaching more than $5 per share in the past 12 months.
• The share price has obviously followed.

Alfred F. Kelly is also recognized as a Top CEO in 2019 on Glassdoor. But you were expecting no less at this point, right?

Source

5) Match Group (MTCH)

Dating apps have long been considered interchangeable and having no real moat. The reality? Sure, software is a commodity. But the real value is in the ecosystem. For the platforms that have reached a critical mass and benefit from the power of the network effect (my favorite economic moat), it's only the beginning.

I have pounded the table time an time again about Match Group, one of my best investments to date. I started investing in the company when it was trading at $12 a share and have accumulated shares ever since.

Here's the one chart you need to see to understand why you should invest in the largest online dating corporation in the world.

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This kind of tailwinds is unheard of. Match Group is a first mover in the industry and a global leader with its app Tinder. Better yet, the untapped market is still gigantic and the business growth is still likely in its early innings in an international market where the stigma around online dating remains strong.

Source

Now, let's look at the best part: the numbers!

Data by YCharts

• Return on Equity: Dramatically improving since going public, ROE has reached 148% in the past 12 months. This is largely explained by the fact that Match Group is more leveraged than the other companies discussed today. Nothing extraordinary, though. Total long-term debt is currently $1.65 billion, about four times the annual free cash flow of the company. A healthy position, even by Warren Buffett's high standards.
• Gross Margin: Very high at 75% and mostly stable around 80% ever since going public.
• Profit Margin: Very high as well at 27%, trending well over 20% for the last two years.

Data by YCharts

Match Group has always generated a lot of cash thanks to its high margin business, but the numbers have expanded dramatically over the last three years.

• Free Cash Flow has grown 141% just over the past three years, reaching $556 million over the past 12 months.
• EV to Free Cash Flow multiple has been oscillating between 20 and 50 in the past three years. Here again, it might sound expensive at first, but you have to consider the kind of business you are paying for. When a business is cash-flow accretive like this, you are likely to see great returns over time. You can take advantage of short-term volatility by accumulating shares any time the company is trading in the low end of the its valuation spectrum.

Data by YCharts

• EPS Diluted has shot up 216% over the past three years, reaching more than $1.68 in the trailing 12 months.
• The share price has obviously followed.

Match Group is the only company on this list led by a female CEO, Mandy Ginsberg. Management has an impressive track record with products successfully incubated internally - like Tinder - as well as smaller companies accretive to the business and acquired opportunistically when they were a good fit, such as Hinge recently.

Source

6) Paycom Software (PAYC)

Paycom Software is offering a platform for all HR-related functions such as paycheck, recruitment, benefits and time management. The company has been able to keep its RRR steady at 91% for the past three years, a very high number considering the failure rate of small businesses, the main market Paycom is serving.

Source

In many ways, Paycom is a mini-ADP (ADP), giving you a chance to partake in the growth story of a strong entrant in the cloud services dedicated to HR departments. By targeting the mid-market, Paycom has successfully become a first mover within its own section of the market.

What about the numbers?

Data by YCharts

• Return on Equity: Very high ROE at 42% and consistently above 25% since 2016.
• Gross Margin: Extremely high and stable, currently at 85%.
• Profit Margin: Very high as well at 24%, trending upward ever since going public in 2014.

Data by YCharts

• Free Cash Flow has risen steadily in the past five years. The company turned cash flow positive shortly after going public in 2014.
• EV to Free Cash Flow multiple has been oscillating between 40 and 80 in the past five years. Given the rapid free cash flow growth, the current high multiple can be misguiding. Just like Match Group, you can take advantage of short-term volatility by accumulating shares any time the company is trading in the low end of the its valuation spectrum. But you have to consider that it has rarely been below 60 in the past three years.

Data by YCharts

• EPS Diluted has shot up from $0.33 in 2015 to $2.67 in the past 12 months, an astounding rise of 709%.
• The share price has obviously followed.

When all the components of a business click, with fast revenue growth translating into even faster earnings growth, wonderful things happen.

On the management side, we are once again looking at someone recognized as a Top CEO on Glassdoor in 2019, Chad Richison.

Source

Investors focusing on any valuation multiple today would find Paycom overvalued. But the business fundamentals are so impressive and the returns generated are rising at such a fast pace that it becomes very clear that Paycom is on a path that will likely deliver amazing returns for shareholders over the long term. Over a 10-year time frame, competing with the returns of S&P 500? I believe PAYC comes on top.

7) The Trade Desk (TDD)

The Trade Desk is a digital ad platform serving the programmatic ad market. The company is covering the entire digital advertising market: Connected TVs, mobile, video, audio, displays, social, native. The worldwide advertising market is expected to reach about one $1 trillion in 2022. The company is growing at a fast clip and is retaining 95% of its customers. You can find my detailed write-up about The Trade Desk here.

For many years, adtech has been perceived negatively by Wall Street with challenges around effectiveness, fraud and overall lack of transparency. The Trade Desk is trying to break through as an adtech company focused on ethics, transparency and quality.

Source

One of the most striking strengths of the business is how profitable it already is despite the business being in its nascent stage. The company is still below $10 billion market cap as of this writing.

Let's review the numbers since the company IPO'd in 2016.

Data by YCharts

• Return on Equity: Above 20% ever since going public and currently at 25%.
• Gross Margin: Extremely high and stable, currently at 76%.
• Profit Margin: Trending upward ever since going public and already above 17%.

Data by YCharts

• Free Cash Flow has more than doubled since 2016 once you exclude the cash raised during the IPO.
• EV to Free Cash Flow multiple has been expanding steadily, reaching a whooping 172 recently. The market has certainly started noticing the outstanding business execution and valuation multiple have grown accordingly. The company has traded above ~100 for the majority of the past two years.

Data by YCharts

• EPS Diluted has shot up from a loss of $1 in 2016 to $2.07 in the past 12 months.
• The share price has obviously followed.

Jeff Green, CEO of The Trade Desk, is defending the idea of healthy competition with header bidding, an open auction based on meritocracy.

His vision obviously is resonating with partners given the rapid growth of the business. The company has kept on beating Wall Street's expectation by a wide margin and is seeing its Connected TV segment roaring higher with 250% growth in the most recent quarter.

When a company is seeing its earnings grow 44%, there's a good chance that any backward-looking valuation multiple is outdated very fast.

To make money in stocks you must have: the vision to see them, the courage to buy them and the patience to hold them. Patience is the rarest of the three. – Thomas Phelps (original quote: George F. Baker)

Maybe the most challenging piece of the equation to invest in TTD is the courage to buy shares despite their high valuation. But as long as you are willing to give it years, I'm very bullish on the long-term prospects of the company.

Source

8) Momo (MOMO)

I've dubbed Momo before the "Match Group of China."

Momo is the online dating leader in China with its live-streaming platform Momo and Tinder-like dating app Tantan, acquired in 2018. Momo is monetizing heavily via virtual gifts between users, and it's only a matter of time before Tantan becomes one of the main growth engines of the company. As illustrated by CEO Tang Yan's confidence during a recent earnings call: "Our goal is to make Tantan a new engine for the company in the coming two to three years."

Source

Tantan delivered astonishing growth in Q1 FY19 with 1.1 million net addition in paying users. With 5 million paying users, Tantan was able to get ahead of Tinder with an install base predominantly in China and South Asia.

	Tinder	Tantan
Additional paying users Q1 FY19	+0.4 million	+1.1 million
Total paying users end of Q1 FY19	4.7 million	5.0 million

Click to enlarge

Source: Momo Q1 Earnings Transcript and Match Group Investor Presentation

After being under government scrutiny in Q2 due to stronger moderation needed on its platforms, Momo was able to work efficiently with Chinese officials and is now back on a clear path for continue growth.

Let's look at the business performance.

Data by YCharts

• Return on Equity: Above 20% for the past three years.
• Gross Margin: Stable over the past three years, at 47%.
• Profit Margin: Above 20% over the past three years, but recently falling down to 14% due to the acquisition of Tantan generating share-based compensation to the founders. These costs are one-offs and the trend upward should continue in the upcoming years. This also presents a great opportunity since the current valuation multiples are compressed due to these non-recurring costs. Only investors looking at the trend over years can notice what is likely to be a temporary hiccup in profit margin.

Data by YCharts

• Free Cash Flow has more than doubled since 2016. The cash flow profile of Momo is extremely similar to Match Group.
• EV to Free Cash Flow multiple has reached the low-end of the spectrum, currenly at 11.

Data by YCharts

• EPS Diluted has turned positive in 2016 and has trended nicely upward ever since the company went public. The current weakness in margin following the large acquisition of Tantan should be only a temporary slowdown in an otherwise clear trend up and to the right.
• The share price should reasonably resume its trend higher along with the EPS in the coming quarters.

Likely due to its smaller size and lack of office in the United States, Momo doesn't have reviews on Glassdoor. But management has been very transparent and is sharing much more during earnings calls than most Chinese businesses trading in the US. There's also a great deal of visibility from the performance of its portfolio of apps on the various app stores in Asia, enabling more confidence in the business prospects.

The vision of the leadership around a la carte monetization of its audience and the marketing push around Tantan across South Asia makes me a strong believer in this team.

9) Etsy (ETSY)

A fundamental piece of the App Economy is the gig economy.

While companies like Uber (UBER) or Lyft (LYFT) are facing many challenges and are struggling to find a clear path to profitability, a clear winner of the gig economy is Etsy.

Source

Etsy is a global two-sided marketplace for unique and creative goods. They connect creative entrepreneurs (2.3 million active sellers in Q2 FY19) with consumers (43 million active buyers in Q2 FY19) looking for items that are intended to be special, reflect their sense of style, or represent a meaningful occasion. 67% of Etsy visits come from mobile.

Marketplaces that can keep on growing their pool of buyers and sellers benefit from an obvious network effect. More relevant items are being listed and more customers show up as a result.

Let's dig into the numbers since its 2015 IPO.

Data by YCharts

• Return on Equity: Improving steadily since the IPO, very high at 27%.
• Gross Margin: Stable and very high at 69%.
• Profit Margin: Improving steadily over time and already at 16%

Data by YCharts

• Free Cash Flow went from negative to $157 million in a matter of three years, more than doubling since early 2018.
• EV to Free Cash Flow multiple has been falling recently, reaching its lowest point in the past twelve month at 34 times.

Data by YCharts

• EPS Diluted has shot up from losses in 2016 to $0.85 in the past 12 months.
• The share price has followed EPS appreciation since 2016, except over the past few weeks, presenting an interesting discount of 30% from recent high.

Based on estimates from Euromonitor, Etsy represented only 4% of the specialty retail space in 2018. A fantastic opportunity for Etsy's leadership. As you already anticipated, Etsy is another place where culture and vision at the top are celebrated by employees on Glassdoor.

Source

As a secular grower of the gig economy benefiting from obvious societal tailwinds, Etsy hits all the right notes for long-term investors. Given the steady improvement of its performance, its already high margins and fast growing cash-flow generation, the company appears poised to deliver strong return for the next 10 years.

10) AppFolio (APPF)

AppFolio has its own niche: A focus on small and medium-sized property management and law firms. Better yet, management expects new verticals to be added in the coming years.

Source

Based on its S-1, the company's dollar-based net expansion rate is 133% for property manager customers and 100% for law firm customers. You can find my write up about Appfolio here.

Now, let's look at the business performance.

Data by YCharts

• Return on Equity: Trending upward ever since going public, at 34%.
• Gross Margin: Stable since going public, high at 60%.
• Profit Margin: Trending upward as well since going public, reaching 16%.

Data by YCharts

• Free Cash Flow has clearly improved since APPF went public in 2015. But it can be harder to see a clear trend just yet for the smallest of the companies presented today. The strong return on equity and improving margins are here to indicate that cash should soon follow.
• EV to Free Cash Flow is ridiculously high at 258. Given how small and young this company is, with a FCF barely above zero, this KPI doesn't mean much.

Data by YCharts

• EPS Diluted has just turned positive in 2017 and is trending clearly upward.
• The share price has followed the EPS appreciation, particularly strong in 2019. The steady orange line up and to the right tells me that there's more to come, particularly with expanding margins.

I'm sure you won't be surprised to learn that AppFolio also has a CEO with an outstanding approval score on Glassdoor (98%). The company appears to have prioritized culture as a fundamental part of its DNA. And the numbers are here to confirm that this bet has paid off so far.

Source

Recap

Source: Chart by App Economy Insights. Data from Glassdoor and Ycharts as presented above. S&P 500 averages from etf.com, Yardeni Research, CSI Market and multpl.com.

This basket represents about a third of the App Economy Portfolio. The vast majority of these companies are all part of the information technology sector and are based in the US. To be clear, they are not meant to represent a balanced or diversified portfolio. They are presented together here for their similarities: Above average metrics and high consistency and improvement of their operations over the years.

The average performance of this selection is far ahead of the metrics of the S&P 500 benchmark on all KPIs: ROE, gross margin, profit margin, sales growth. They also benefit from strong balance sheets with reasonable leverage when applicable.

The average PE of 51 will appear very high to most prudent investors, but I hope to have addressed throughout this article how backward-looking metrics remain a misguiding tool to make an educated investment decision for the next 10 years.

Taking the 30,000-foot view

It's easy to get carried away with the news cycle. But if you are a business-focused investor, your investment decision shouldn't be driven by the last trending article on Seeking Alpha.

Identifying a handful of amazing businesses you want to invest in for the long haul and wait patiently to be able to accumulate shares on the cheap is how Warren Buffett built most of his fortune.

If you decide to buy shares of a company with the next 10 years in mind, chances are, you'll be much more selective and will demand more certainty from the underlying business you are investing in.

The investing game is a game of luck. You can play without looking at your cards, but you will likely fare much better if you stack the deck in your favor.

So many people invest in a company because it will "likely beat estimates in the next earnings report." That's no different than playing roulette at the casino. You don't know what you don't know, and even if you are right, that's not a sustainable and repeatable approach. You are collecting pennies with tax inefficiencies in the process.

With the 10 businesses shared with you today, I wanted to give you a sense of what a 30,000 feet view looks like. Looking at the prospects of an investment requires more than listening to an opinion on CNBC. Only by understanding the long-term performance of a business and by thinking probabilistically will you be able to turn the odds in your favor.

By looking at years of operating performance of a business and evaluating the leadership team in place, you are focusing on what is likely to deliver outstanding returns over the long-term.

Disclosure: I am/we are long AAPL APPF FB GOOG MOMO MTCH PAYC TDD V. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.