Blog 3 - Picking Quality Compounders

How Oasis finds the 20–35 businesses that can out-perform the S&P 500

“Blindfolded, dart-throwing monkeys can pick a portfolio better than many paid money managers.”— Burton Malkiel, A Random Walk Down Wall Street¹

Investing can be simpler than the industry wants you to believe. Passive exposure to the S&P 500 has returned ~10%+ since 1980, yet the index contains hundreds of mediocre companies. At Oasis Growth Fund (OGF) by filtering out the 'noise', we seek to create a focused portfolio of 30-40 mid-to-mega-cap, North American compounders that historically—and prospectively—outperform the market.

Why not just own the index?

The S&P includes ~500 companies: a few greats, many goods, and a lot of mediocre businesses. Our objective in Tier 1 is to remove the weak links and build a concentrated, equal-weight core that compounds reliably over decades—but not “buy and forget.” Businesses change; so must your diligence.

The Four Tiers (context)

OGF’s playbook spans four complementary time horizons:

• Tier 1 — Core long-term compounding businesses (decades)

• Tier 2 — Income via covered calls (weeks)

• Tier 3 — Opportunistic puts & measured leverage (months)

• Tier 4 — Portfolio protection (always)

This post specifically focuses on Tier 1 — stock selection.

Screening: 19 filters to find 30–40 compounders

From a pool of nearly 4,500 candiate stocks, the following 19 criteria, grouped into 7 categories, can help select 30-40 high quality, risk-measured, mid-to-mega cap, North American, growth stocks that individually, and collectively, should continue to out-perform the S&P 500. Not every company needs every box ticked, but deficiciencies will reveal vulnerabilities that may require closer monitoring.

1. Market cap, listing and 5-yr performance (3 filters)

• North American listing (accountability: legal, accounting, regulatory)

• Market cap > US$2bn (mid/mega reduces operational surprises)

• 5-year performance > S&P 500 (otherwise why not own the SPY ETF?)

2. Trending business fundamentals (4 filters)

• ROE ≥ 20% (or improving trend)

• 5-yr revenue growth: positive long-term trend

• 5-yr earnings growth: positive and accretive to cashflow

• Healthy balance sheet (Debt/Equity < 1)

3. Positive qualitative traits (3 filters)

• Global business diversity (reduces single-market risk)

• Visionary, accountable leadership (CEO reputation matters)²

• ESG overlay used to confirm quality (not to replace fundamental filters)

4. Favorable variance vs reward-risk profile (4 filters)

• Std Dev (5-yr) < 30% (controls surprise exposure)

  • The OGF holds 21/35 stocks with 5 year average annual Std Deviations < 33%.

• Sharpe Ratio > 1.0 (superior risk-adjusted performance)

  • The OGF holds 17/35 stocks that generate more performance than volatility.

• Beta < 1.2

  • Similar to the gas and break pedals of a car, steer your portfolio by upweighting or down-weighting your portfolio's exposure (Beta) to the market.

• Covariance unveils diversification weaknesses: 

  • Correlation / covariance checks (CC < 0.6 suggests diversification merit)

  • A correlation of +1 means that 2 stocks move identically.

  • Mastercard vs Visa 0.93; Apple vs Google 0.58 (as at June 30, 2025).

  • The OGF average security correlation in the portfolio is 0.36. (as at June 30, 2025)

  • Run your holdings through a CC tool (e.g., PortfolioVisualizer) to reveal hidden risk concentrations: www.portfoliovisualizer.com/asset-correlations

5. Shareholder-friendly practices - tend to boost share price performance

• reinvesting in R&D

• regularly paying down debts

• payment of regular & special dividends

• share buy-back plans

• business spin-offs

• M&A activity. 

6. Options string

• Stocks with options allow us to increase performance by harvesting yield (covered calls), writing puts and by deploying protective trades.

7. Diversification merits (3 filters) - reduce security risks

• Sector/industry diversity.

• Geographic revenue sources.

• Business model varieties.

Summary — A checklist, not a religion

Use these 19 filters to shorten your list. Not every company will meet all filters—identify vulnerabilities and plan mitigation. Once you’re down to 50 names, the art is choosing 30–40 holdings to build a durable, equal-weight, diversified core portfolio. Stocks that don’t make Tier 1 may could still serve to sell Puts opportunistically in Tier 3.

Where to start: quarterly OGF holdings are posted at The Investing Oasis.

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RESOURCES:

• Stock screener – www.seekingalpha.com

The author of this blog series is the portfolio manager of the Oasis Growth Fund and author of “The INVESTING OASIS: Contrarian Treasures in the Capital Markets Desert”.

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[1] The Oasis Growth Fund is Series O of the Fieldhouse Pro Funds Inc trust series available by Offering Memorandum in Canada through select Financial Advisors. This education series is not intended as a solicitation for investment in the Oasis Growth Fund nor is it sponsored by Fieldhouse Capital Management Inc.

[2] In "The INVESTING OASIS", the number of filters is listed as 16. In having further broken out the process in this blog series, there are now 19 filters (as identifed above). At the next printing, this errancy will be updated.