Compounding Dividends

Compounding Dividends

Share this post

Compounding Dividends
Compounding Dividends
25 Quality Cannibals
Copy link
Facebook
Email
Notes
More

25 Quality Cannibals

Some buybacks make you rich. Others burn billions. Here’s how to tell the difference

TJ Terwilliger's avatar
TJ Terwilliger
Mar 29, 2025
∙ Paid
12

Share this post

Compounding Dividends
Compounding Dividends
25 Quality Cannibals
Copy link
Facebook
Email
Notes
More
1
Share

We've talked about Cannibal Stocks before - the businesses that relentlessly buy back their own stock. The pie gets smaller, but your slice gets bigger.

For smart investors, this is an irresistible deal: the same great business, the same profits, but more value per share.

If you love watching your wealth quietly compound, these companies can be great long-term bets

But… are buybacks always a good idea?

Take IBM. Mohnish Pabrai points the company out as an example of buybacks gone wrong.

Source: Mohnish Pabrai

From 2009 to 2019, they steadily repurchased their own shares. Yet, the stock price stayed flat.

Even Warren Buffett bought in between 2011 and 2017 - and lost money.

What went wrong?

Look at the revenue and net income, and it becomes painfully clear.

A Cannibal Stock only works if the underlying business is stable or growing. Buybacks won’t save a company in decline.

The Uber Cannibal Investing Framework

Mohnish Pabrai developed an ‘Uber Cannibal Investing Framework’.

Mohnish Pabrai's Uber Cannibals Investment Strategy | Yearly Investor ...

Here are the core principles:

  1. Earnings must be stable or growing for at least 20 years

  2. Cyclical businesses? Fine - as long as they don’t get wiped out in downturns

  3. It all comes down to three things: earnings growth, valuation, and the number of shares repurchased

After 20 years, only four things matter:

  • How many shares have actually been retired?

  • What was the average earnings and growth rate?

  • Is the business still strong?

  • What valuation is the market assigning to it?

And the most important rule: never invest in Cannibals with an uncertain future.

Remember IBM.

Cannibals and Quality Investing

If this sounds familiar, it’s no coincidence.

The best Cannibal Stocks fit perfectly into the Quality Investing framework.

Quality companies have the following characteristics:

  • A wide moat

  • Management with high integrity

  • Low capital intensity

  • Good capital allocation

  • High profitability

  • Attractive historical growth

  • A secular trend / optimistic outlook

These are the businesses we want - in both the Compounding Quality and Compounding Dividends Portfolios.

Quality + buybacks = serious wealth creation.

Here’s a list of 25 Quality Cannibals directly from Pieter:

Let’s give you a spreadsheet with the important details and dive into a few of the most interesting:

This post is for paid subscribers

Already a paid subscriber? Sign in
© 2025 Compounding Dividends
Privacy ∙ Terms ∙ Collection notice
Start writingGet the app
Substack is the home for great culture

Share

Copy link
Facebook
Email
Notes
More