Quality Investing: Owning the best companies for the long term

December 12, 2019 - Comment

The concept of quality is familiar. People make judgments about it every day. Yet articulating a clear definition of quality is challenging.The best companies often appear to be characterized by an ineffable something, much like that of people who seem graced by a lucky gene. Think about those of your peers who seem a lot

The concept of quality is familiar. People make judgments about it every day. Yet articulating a clear definition of quality is challenging.
The best companies often appear to be characterized by an ineffable something, much like that of people who seem graced by a lucky gene. Think about those of your peers who seem a lot like you but somehow always catch a break. They are not obviously smarter, smoother, richer, or better-looking than you, yet they are admitted to their university of choice, get their dream job, and earn considerable wealth. Try to discern what they have that you don’t, and you are stumped. Chalk it up to fate or plain dumb luck.
Businesses can be similar. For reasons that are not always evident, some end up doing the right things with better results than average. They may not appear to be savvier acquirers, more adept marketers, or bolder pioneers, yet they integrate new businesses better, launch products more successfully, and open new markets with fewer mishaps. Perhaps through some combination of vision, scale, or business philosophy, these companies uncannily come out ahead.
In our view, three characteristics indicate quality. These are strong, predictable cash generation; sustainably high returns on capital; and attractive growth opportunities.

Comments

Anonymous says:

Shockingly good. Another reviewer complains that there’s no “framework” here Shockingly good.Another reviewer complains that there’s no “framework” here. Thank God. Look, in some fields no matter how far you progress there’s another framework – solid, concise, complex, interlocking body of knowledge – to be learned. Classical mechanics > electromagnetics > quantum, etc.More commonly in other fields there’s some basic useful framework everyone should learn right away, but once that’s mastered progress is all about filling your head…

Anonymous says:

Good Book on Quality Investing but No Framework It is a very good book on investing in quality companies. Investing is very difficult and there are so many exceptions to rules so there needs to breadth. Unfortunately, the only problem with the book is there is too much breadth and it is difficult to take away a framework that can be used for analyzing companies. It is a very good book that should be read and re-read. It is just written in a way that seems to have no linear path or a structure that can be used in analyzing companies…

Anonymous says:

Excellent on Business Models If you are looking to understand how certain businesses do better, maybe much better, than others then this is the book to read. Ideally a company has a growing end market, but it is as important that they have the right go to market strategy.

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