In the Search of Gold Standard
Thoughts from researching WATSCO and its unique ownership culture
This morning, I listened to one of my favorite podcasts, Business Breakdowns, featuring Watsco (WSO) — a company I am about to study. One sentence jumped out:
“Watsco is the gold standard for ownership culture, underpinned by its decentralized management style.”
The whole statement, esp the phrase ‘Gold Standard’, stuck in my head for many days.
What does “Gold Standard” mean in value investing?
I. What Is the “Gold Standard”?
Not to be confused with a monetary system term linking a country’s currency to the physical Gold, here Gold Standard refers to the highest quality in a benchmark we choose in evaluating businesses— the kind of business that’s rare, durable, and capable of compounding value for decades at an excellent rate. These are businesses that can be owned, not traded — the kinds of companies that long-term value investors dream of finding.
In a world of noise and short-term games, the Gold Standard matters most to those who aim to hold for many decades, not a quarter.
II. Find a Business of Gold Standard
Out of thousands of stocks, how do we locate just those rarity of Gold Standard?
We typically use filters. Powerful filters help us exclude those either unworthy to us or too complex for us and lead to a small pool of candidates. We then use another powerful tool called Ranking: we rank our candidate stocks using insightful attributes and sort them in an order of Gold, Silver, Copper and so on. Then, we pick up GOLD at the top.
Filtering: exclude unworthy to us or too complex for us;
Ranking: pick up “GOLD” after sorting candidates into Gold, Silver, Copper and so on.
As Dr. Ming Wang, a renowned eye surgeon and author of auto-biography Darkness To Sight which the award-winning film SIGHT is based on, puts it: “Ranking is one of top pearls of human thinking.”
To compound our capital for creating enduring wealth - gold- we need find those businesses in GOLD STANDARD and entrust and invest our capital on them.
III. Watsco as a Case Study
Back to Watsco, the UK-based fund managers interviewed in the podcast highlighted two key attributes for them to rank WSO as “Gold Standard” business:
Ownership culture — incentive alignment of insiders, employees, and shareholders.
Decentralization — scaling with autonomy and staying agile as the company grows.
At surface, Watsco seems a moat-light firm in the unsexy HVAC distribution industry. Beneath however, Watsco exmplifies these two wisdoms above in supreme. Its CEO, Albert Nahmad, has led the company since 1973 — over 50 years — making him one of the longest-serving CEOs in America. His story is the quintessential immigrant success story: born in Panama, Nahmad came to the U.S. for education, worked hard in jobs and then bought a tiny HVAC maker Watsco in 1972; in 1989, Watsco acquired an 80% interest in Gemaire in Florida and made a strategic direction change to distribution and grows it into the largest HVAC distributor in America. Watsco’s $22m market cap in 1989 grows to more than $20b in 2025. Today, he is a billionaire philanthropist, but his focus has never strayed far from building something durable in a mindset of value creation with Gold Standard.
Watsco’s culture reflects this long-term lens. The company grants equity to managers and employees over time — but here’s the twist: except due to long-term disability, that equity is 100% forfeited if the employee leaves before retirement. This is not a mere retention gimmick — it's a structural commitment to long-term compounding of knowledge and trust. It attracts and rewards those who think and act like long-term owners, not transients.
Such mechanisms rarely show up in accounting metrics, but they forge moats of a different kind: ownership alignment moats. They retain key talent, align interests across decades, and preserve institutional wisdom.
Watsco may not show up often on the front page of newspapers, but in its core, it embodies this gold standard: long-term capital stewardship, and compounding through wise acquistions and decentralizated management.
This approach isn’t just theoretical. The fund bought Watsco 8 years ago at $145 and held ever since. By March 2025, shares traded at $515 — a 255% return in 8 years.
Zooming out: over the past 33 years being a public entity, Watsco’s stock has grown 426x, compounding at an IRR over 20% — even outpacing Buffett’s Berkshire Hathaway.
No wonder these duo from UK-based fund Caledonia ranked Watsco the Gold Standard and has held it for 8 years straight. My curious search also shows Caledonia Fund was started in1928. A true long-term investor, its age of 97 years is at the same league as Berkshire Hathaway (which celebrated its 60th birthday the past May). Watsco’s other major investors include Baillie Gifford (age 117, since 1908). It looks to me that the value compounders of Gold Standard attract those long-term investors in Gold Standard - ‘Gold attracts Gold.”
IV. Wisdom of Gold Standard
Some companies shine in bull markets. Others, like Watsco, endure and compound as Gold Standard, across decades, cycles, and crises. These are the businesses that investors can hold with conviction for long-term value creation.
But finding them takes more than just spreadsheets — it takes wisdom and insights which I call ‘Value Wis’.
🟡 The way to create wealth like Gold is to invest on people and businesses who live by GOLD STANDARD, consistently over a long duration of time. Gold Standard is the best-in-class standing the test of time!
Next Up: The Gold Attributes and Opportunity Cost
One natural question is, how we choose the attributes by which we rank businesses for Gold Standard? After all, there are just many attributes to evaluate a business.
Another practical question is what if we get two or more stocks, all tied being GOLD STANDARD?
Both are hard questions. They are linked to the framework and investing mental models, two topics I consider super important.
For the first topic, I plan to write a piece on the framework for choosing ‘Golden Attributes’ and why some investors focus on just three such attributes. And why less is often more.
As for the second, I plan to discuss Opportunity Cost, which is one of top mental models evangelized by the late Charlie Munger.
Stay tuned.