10 Key Takeaways from The Art of Quality Investing
1. Buy wonderful companies
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Stock prices will ALWAYS follow the evolution of the intrinsic value over time
1. Buy wonderful companies
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Stock prices will ALWAYS follow the evolution of the intrinsic value over time
2. A moat is essential
Quality investors will never invest in The Next Big Thing.
Instead, you buy companies that have already won.
You can find companies with a moat by using these criteria:
- Pricing power (high and sustainable Gross Margin)
- ROIC > 15%
Quality investors will never invest in The Next Big Thing.
Instead, you buy companies that have already won.
You can find companies with a moat by using these criteria:
- Pricing power (high and sustainable Gross Margin)
- ROIC > 15%
3. Quality outperforms
The Morningstar Wide Moat Index solely invests in companies with a wide moat or sustainable competitive advantage.
This index outperformed the S&P500 by 4.2% (!) per year since 2000.
The Morningstar Wide Moat Index solely invests in companies with a wide moat or sustainable competitive advantage.
This index outperformed the S&P500 by 4.2% (!) per year since 2000.
4. Excellent managers
You want to invest in companies led by great managers
- Founder-led companies outperform by 3.9% per year
- Family businesses outperform by 3.7% per year
You want to invest in companies led by great managers
- Founder-led companies outperform by 3.9% per year
- Family businesses outperform by 3.7% per year
5. Pricing power
Pricing power is a very attractive characteristic
It's like a free growth source for a company
And it's a great protection against inflation too!
Pricing power is a very attractive characteristic
It's like a free growth source for a company
And it's a great protection against inflation too!
6. Use a checklist
Charlie Munger once said: "No wise pilot, no matter how great his talent and experience, fails to use his checklist."
The checklist used in the book will allow you to find great companies
Charlie Munger once said: "No wise pilot, no matter how great his talent and experience, fails to use his checklist."
The checklist used in the book will allow you to find great companies
7. Reinvestment opportunities
The more reinvestment opportunities a company has, the better
Compounding machines are quality stocks with plenty of room for organic growth
The more reinvestment opportunities a company has, the better
Compounding machines are quality stocks with plenty of room for organic growth
9. Use a stock screener
You can use these criteria to find great companies:
- Revenue growth > 5%
- Earnings growth > 7%
- FCF/Earnings > 80%
- ROIC > 15%
- Net Debt/FCF < 5
- Debt/Equity < 80%
You can use these criteria to find great companies:
- Revenue growth > 5%
- Earnings growth > 7%
- FCF/Earnings > 80%
- ROIC > 15%
- Net Debt/FCF < 5
- Debt/Equity < 80%
9. Valuation
A wonderful company at a fair price. That's exactly what you want as a quality investor
We use 3 methods:
- Look at the evolution of the company's forward PE
- Earnings Growth Model
- Reverse DCF
A wonderful company at a fair price. That's exactly what you want as a quality investor
We use 3 methods:
- Look at the evolution of the company's forward PE
- Earnings Growth Model
- Reverse DCF
10. Build your portfolio
Finally, you can build your portfolio based on these 3 steps:
1. Buy wonderful companies
2. Led by excellent managers
3. Trading at fair valuation levels
Finally, you can build your portfolio based on these 3 steps:
1. Buy wonderful companies
2. Led by excellent managers
3. Trading at fair valuation levels
The Art of Quality Investing
A book that outlines the entire investment philosophy of Compounding Quality
It's available on Amazon
A book that outlines the entire investment philosophy of Compounding Quality
It's available on Amazon
That's it for today.
If you liked this, you'll LOVE this e-book with 100 examples of quality stocks.
Grab it here: compounding-quality.ck.page
If you liked this, you'll LOVE this e-book with 100 examples of quality stocks.
Grab it here: compounding-quality.ck.page
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