An Initial Look at Quantitative Stock Selection No more jokes—let’s get down to real substance. Today, I’ll talk about something useful but dry: quantitative stock selection. The U.S. stock market is highly information-rich. This means your trading ideas can be efficiently filtered using quantitative criteria. Let me explain plainly. There are approximately 22,000 companies in the U.S. and Canada. It’s impossible for individual retail investors to analyze them all—and even professional teams of dozens struggle to keep up. So what’s the solution? Quantitative stock selection. My goal is to identify from these 22,000 stocks a set of reliable compounding machines. The core focus is on historical quality—specifically, ROIC (Return on Invested Capital), a measure of capital efficiency. To ensure sufficient margin of safety, I also tightened the margin thresholds. For growth potential, I set minimum thresholds for EPS growth and revenue growth. The criteria are as follows: - LTM ROIC > 15% - 5-Year Average ROIC > 15% - 10-Year Average ROIC > 12% - 5-Year Average EBIT Margin > 12% - 5-Year Average FCF Margin > 8% - 5-Year Revenue CAGR > 7% - 5-Year EPS CAGR > 8% - Future revenue and EPS expected to maintain moderate growth - PE, EV/EBITDA, P/FCF, FCF Yield, and PEG ratios all reasonable - Net Debt / EBITDA < 2x After filtering, I arrived at five companies: Adobe Booking Netflix Paycom WMS These companies all share compelling characteristics: Mature business models, high capital efficiency, stable cash flows, consistently high profit margins over many years, and well-validated economic moats. I won’t go into detail on each of these five here. Additionally, beyond these steady compounding machines, I also identified high-growth breakout stocks and undervalued value plays—each with different criteria. Layer by layer, I narrowed the universe from 22,000 down to fewer than 10. Taking time to explore them reveals subtle insights—and serves as a powerful tool for stock selection and fundamental analysis.