10 Remarkable things I learned from the book Quality Investing:
1️⃣ Key characteristics of Quality
The best companies in the world have the following characteristics:
▪️A sustainable competitive advantage
▪️Strong predictable cash flows
▪️High returns on capital
▪️Attractive growth opportunities
The best companies in the world have the following characteristics:
▪️A sustainable competitive advantage
▪️Strong predictable cash flows
▪️High returns on capital
▪️Attractive growth opportunities
2️⃣ Competitive advantage
A moat is essential for every company.
Companies with a sustainable competitive advantage are characterized by 2 things:
▪️ High and stable gross margin
▪️High and stable ROIC
A moat is essential for every company.
Companies with a sustainable competitive advantage are characterized by 2 things:
▪️ High and stable gross margin
▪️High and stable ROIC
3️⃣ Capital allocation
Capital allocation is the most important task of management.
A company has the following capital allocation options:
▪️Organic growth
▪️Strengthen the balance sheet
▪️M&A
▪️Return capital to shareholders (dividends and/or share buybacks)
Capital allocation is the most important task of management.
A company has the following capital allocation options:
▪️Organic growth
▪️Strengthen the balance sheet
▪️M&A
▪️Return capital to shareholders (dividends and/or share buybacks)
4️⃣ Return on capital
ROIC tells you how efficiently a company is allocating capital.
Seek for companies with a ROIC of at least 15%.
ROIC tells you how efficiently a company is allocating capital.
Seek for companies with a ROIC of at least 15%.
5️⃣ Multiple sources of growth
A company can grow in different ways:
▪️Gaining market share
▪️Geographic expansion
▪️Pricing, mix and volume
▪️Cyclical market growth
▪️Structural end-market growth
In the long term, stock prices tend to follow earnings growth.
A company can grow in different ways:
▪️Gaining market share
▪️Geographic expansion
▪️Pricing, mix and volume
▪️Cyclical market growth
▪️Structural end-market growth
In the long term, stock prices tend to follow earnings growth.
6️⃣ Management
You want to invest in companies that have excellent management teams.
Good managers have the patience and discipline to invest in organic growth.
You want to invest in companies that have excellent management teams.
Good managers have the patience and discipline to invest in organic growth.
7️⃣ Focus on customers
The products of quality companies offer considerable benefits to their customers.
There are different kind of benefits.
Think about the lowest price, highest quality, convenience, ...
The products of quality companies offer considerable benefits to their customers.
There are different kind of benefits.
Think about the lowest price, highest quality, convenience, ...
8️⃣ High recurring revenue
You want to invest in companies with predictable cash flows.
High degrees of recurring revenue increase the stability of a business and the predictability of its cash flows.
You want to invest in companies with predictable cash flows.
High degrees of recurring revenue increase the stability of a business and the predictability of its cash flows.
9️⃣ Companies to avoid
There are a few companies you should try to avoid:
▪️Cyclical companies
▪️Companies active in highly disruptive industries
▪️Hot shots
▪️Loss-making companies
There are a few companies you should try to avoid:
▪️Cyclical companies
▪️Companies active in highly disruptive industries
▪️Hot shots
▪️Loss-making companies
🔟 Quality > Valuation
In the long term, the quality of the business is way more important than valuation.
Try to buy wonderful companies at a fair price.
In the long term, the quality of the business is way more important than valuation.
Try to buy wonderful companies at a fair price.
That's it for today.
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It will be published on Amazon soon, but today you can grab it for free.
Sign up here: eepurl.com
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