The Heavy Moat Investment Philosophy

An introduction to this publication and how I search the intersection between high-quality businesses and undervaluation

May 06, 2025

Why do most retail investors underperform the market? I believe it’s not due to lack of intelligence, but due to a lack of framework. The Heavy Moat philosophy is my answer to that problem—and I’m here to share it with you. You’ll learn my quality-value investing guidelines, valuation methodology and what content you can expect to read about in this publication.

If you want to read more about myself and what you can expect from this publication, check out my about page and subscribe if you haven’t.

Why quality-value investing?

The main principles I follow are value investing in high-quality companies with a long-term investment horizon, ample reinvestment opportunities in secular growth industries and a rational cash flow focus. As a young investor with decades of time to compound wealth, I believe that the focus should be on owning high-quality businesses with the same time horizon as you. Short-term profits are fine, but it’s not what true wealth is built out of.

The only way to follow a buy-and-hold strategy, in my opinion, is with high-quality businesses, making it harder to get shaken out if problems and market downturns arise. I like to own stocks, where I can sleep well at night, knowing my capital is in good hands. To be exact, I believe in a buy-hold-and-verify strategy: Companies and the world are constantly changing and we need to assess our investment thesis at least once a year to make sure it’s still intact.

I am, however, not a fan of the quality at any price investment approach. Hence, valuation is an important part of my investment process. I try to find the intersection between high-quality businesses and fair/undervalued valuations. Stock prices are inherently volatile and it’s important to not get carried away and caught up into the FOMO (fear of missing out).

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What is quality?

I like Chuck Akre’s metaphor of the three legged stool to represent the three foundations of a high-quality company:

extraordinary business
talented management
great reinvestment opportunities

In essence, we are looking for businesses with a large and growing competitive advantage/moat, led by talented people, that can allocate capital well by reinvesting back into the business and returning excess capital to shareholders. I developed a 13-factor framework for evaluating business quality:

Management Alignment

A company should be led by a management team with preferably long tenures and experience in the business as well as an equity stake in the shares. Ideally executives are founders or worked their way up within the company. Furthermore, compensation should align with shareholders and focus on sustainable value creation and long-term total returns.

Secular Trend

We should strive to own businesses operating in secular trends, meaning that the industry they operate in is expected to see growth above GDP. I prefer moderately growing industries over exponential growth, because those markets often see an abundance of new capital and competitors coming into the space and eroding margins.

Margins

Over time margins should increase. Ideally we want to see increases across the board with gross, operating and cash flow margins trending up. Over the short term margins can be volatile, especially in scalable businesses with a fixed cost structure going through an investment phase or down turn. It’s important to distinguish between structural changes and normal cycles.

Balance Sheet

For the balance sheet I mainly look at the leverage. I prefer companies with <2x net debt/EBITDA, so that they don’t depend on their debtors and have their destiny in their own hands. If a business has debt I also want to know how long maturities are out and what interest rate they are paying.

Moat/Competition

This is one of the most vital parts of analyzing a business. We must understand how durable the competitive advantage is and if it is increasing. Is the niche fiercely competed for or are they enjoying an oligopoly without much new competition coming in?

Past growth

While an analysis should be forward looking, it’s also important to know the past. How rapidly have they grown in the past and how smooth was the ride? It’s often an indicator for the future.

Expected growth

Growth is the most important part of the investment equation. We want a company that can show durable revenue growth rates over many years to come. We must understand what type of growth rate we can expect and how that growth should be generated.

ROIC

Return on Invested Capital is a metric which can help us understand how efficiently capital is used to generate a profit. We want growing ROIC above 10%, ideally over 15%. ROIC should never be viewed in isolation however.

Reinvestment Rate

A high ROIC is not great without reinvestment opportunities to invest additional capital. That’s why we must understand what future growth opportunities a company has or if there aren’t any left.

Capital Return

The goal of a good management team should be to reinvest all cash flows and more into high ROIC opportunities. This isn’t reality however, so we want all excess cash flow to be returned to shareholders via opportunistic buybacks or dividends.

Cyclicality/Visibility

We want to own predictable businesses and ideally non-cyclicals. A company with an uncertain, more volatile future is harder to hold, but can also offer more frequent irrational valuations.

Recurring Revenue

Similarly to cyclicality/visibility, we want to have a predictable business that has recurring revenue with its customers, for example by service agreements or consumables. This makes growth more steady and will decrease the probability of a bad surprise.

Working Capital Management

Lastly, we want a business that leverages its strength and business model to finance growth with negative working capital and low cash conversion cycles. We want to see improving working capital efficiency over time.

What is value?

These were my 13 criteria to judge the quality of a company. While we should only invest in high-quality companies, we also shouldn’t overpay and only buy when we can expect good returns. That’s where the value part comes into the equation. Quality is the foundation of a good investment and value is the amplifier.

Value investing aims to only invest in companies trading below their intrinsic value. This number fluctuates and is always subjective. There are many ways to value a company, but I prefer to use two ways.

Inverse DCF model

An inverse DCF model aims to calculate the growth rate the market prices into the stock to achieve a required rate of return (i.e. 10%). This allows us to not use a lot of assumptions and work from the reported numbers backwards to arrive at the market’s expectations. If we expect the business to grow faster than the calculated growth rate, then shares might be at an attractive valuation.

The issue is that DCFs punish great businesses with a long runway for growth. It assumes that after 10 years growth will stall to 3% into perpetuity. This is often not the case and might make you miss out on a great opportunity.

Internal rate of return model

An IRR model requires more assumptions but gives us more options to model our expectations. By using an exit multiple we do not have the perpetuity problem DCFs are facing. It’s important that we provide accurate and conservative expectations to not inflate our expectations and make a stock look cheaper than it is. I started to prefer IRR models over the last year.

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What to expect here

At Heavy Moat Investments I journal my investing journey and try to make the complicated world of investing simple, while focusing on what matters most. Below is a breakdown of the type of content you can expect to find here:

Deep Dives – In-depth research on high-quality European Small/Mid caps and global compounders. There are always two seperate parts to the analysis: Business model, management and industry & fundamentals and valuation.
Investment Pitches – Quick yet actionable investment ideas, often covering under-the-radar companies. Usually includes >12% IRR opportunities.
Earnings Updates – Focused reviews of earnings reports with major price movements or unexpected developments.
Portfolio Updates – Insights into my real-money portfolio, with valuation matrix and thesis updates.
Investment Strategy Posts – Broader discussions on valuation, capital allocation and long-term investing principles.
Trade Alerts – Notifications on my personal transactions, providing transparency into my investment decisions.
Premium Chat – A space for premium members to discuss market moves, share insights, and ask questions directly.

Want to See This Framework in Action?

All the principles above are not just theory—I apply them to real businesses every month. In my deep dives and investment pitches (premium content), I show how I rank companies using these criteria, what IRRs I expect, and where I’m deploying real capital