Want to build lasting wealth in the stock market? This article shows you how to do it with patience and precision.
You will learn how the Faustmann Ratio — a concept from forestry — can help you find undervalued, high-quality businesses that reinvest their earnings for years. These are the quiet compounders that grow stronger over time. You will also see how the Quant Investing stock screener lets you find these exact stocks in minutes. This is a practical, step-by-step guide to compounding your wealth with discipline.
Estimated Reading Time: 6 minutes
How to Find Long-Term Compounders with the Faustmann Ratio
If you are looking to build long-term wealth in the stock market, the Faustmann Ratio offers a powerful idea: if you choose the right companies and the longer you wait, the bigger your reward.
In The Dao of Capital, investor Mark Spitznagel uses the Faustmann Ratio—a concept from forestry — to explain how patient capital can lead to far greater gains.
In forestry, the ratio helps you decide when to cut down a tree. Cut too early, and you miss out on future growth. Wait longer, and the tree becomes far more valuable. The same principle applies to your investments.
Instead of chasing quick profits, you can use this mindset to find companies that reinvest their profits at high returns — allowing you to compound wealth over time.
How to Use the Faustmann Idea in Your Portfolio
To apply this, you want companies that:
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Reinvest earnings instead of paying them out
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Earn high returns on invested capital (ROIC)
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Can keep reinvesting for many years
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Are trading at a discount to their true value
These are the quiet compounders. They may not make headlines today, but they often deliver the best long-term returns.
Click here to start finding your own Faustmann ratio ideas NOW!
How the Quant Investing Screener Can Help You
You can use the Quant Investing stock screener to filter for these companies in just a few clicks. Here is how:
Step 1: Focus on Quality and Reinvestment
Set your screener to find:
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ROIC > 15% → This shows the company earns strong returns on every dollar it reinvests.
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FCF Yield > 10% → Free Cash Flow is key. You want companies that generate real cash.
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5-Year Sales Growth > 10% → This helps you spot companies with a long runway for growth.
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High Dividend Coverage Ratio → Companies that keep earnings to reinvest often grow faster.
Step 2: Look for Undervalued Stocks
In The Dao of Capital, Mark also highlights the Market Cap to Net Worth ratio to find stocks that are cheap compared to their assets. This ties in perfectly with the Book to Market ratio (Book Value ÷ Market Price).
In the screener sort the results from Step 1:
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By Book to Market from high to low → This helps you find stocks the market is underpricing.
These filters work together to find businesses with great reinvestment potential that are also undervalued. That is the kind of mismatch you want as an investor: high quality, low price.
Start Screening Today
You do not need to wait years to apply these insights. The Quant Investing screener gives you access to over 110 proven financial ratios and 22,000+ companies worldwide. It helps you cut through noise and focus only on what works.
The Faustmann Ratio is more than a formula—it is a mindset. And with the right tools, you can start building a portfolio that grows stronger the longer you wait.
If you are serious about compounding your wealth over time, this is where to start.
Click here to start finding your own Faustmann ratio ideas NOW!
FREQUENTLY ASKED QUESTIONS
1. What is the Faustmann Ratio and why should I care as an investor?
The Faustmann Ratio shows that waiting often gives bigger rewards. It comes from forestry, where they decide when to cut trees. If you cut too early, you lose future growth. In investing, the same is true. If you hold great companies longer, your money can grow faster through compounding.
2. How do I find the kind of companies that can compound my money?
Look for businesses that reinvest profits at high rates. Use a screener to filter for:
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Return on Invested Capital (ROIC) > 15%
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Free Cash Flow (FCF) Yield > 10%
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5-Year Sales Growth > 10%
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Low Dividend Payout (they reinvest instead of pay out)
- Sort these companies by Book to Market ratio from high to low to find undervalued companies.
These are signs the company is growing its value over time.
3. What if the company is great but too expensive to buy?
Even great companies can be poor investments if overpriced. You want both quality and value. Add a "Book to Market" filter to the Faustmann screener and sort high to low. This helps you spot undervalued stocks the market is ignoring.
4. Why should I trust a stock screener and not just follow expert picks?
Because screeners use data, not opinions. They remove emotion from your decisions. With the Quant Investing screener, you can test strategies, find global stocks, and follow proven financial logic. It is how long-term winners invest.
5. What if I do not know how to read financial statements?
You do not need to. The screener does the calculations for you. You just choose filters like ROIC or FCF Yield. Each number gives you deep financial insights — without you digging through reports.
6. How often should I use this strategy?
Once a year or every six months at the most is enough. Investing is not day trading. It is about buying great companies and letting time do the work. Think of it like planting trees—you check on them, but you do not dig them up every week.
7. I’ve made mistakes before—can this approach really work for someone like me?
Yes. Past losses do not mean you cannot succeed. Often, the problem is not you—it is the strategy. A data-driven system like this helps you avoid bad decisions, stay focused, and build real wealth over time.
Click here to start finding your own Faustmann ratio ideas NOW!
