The Quality Investor’s Manifesto
Banging the drums of long term resilient performance in the stock market
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The Quality Investor’s Manifesto
Our aim as quality investors is to achieve robust, risk-adjusted returns over the long term. We seek to invest in exceptional businesses run by stellar management teams. Here, we lay down the key principles guiding our quest:
Investment Criteria
High Margin or Asset Turns: We favor businesses with high profit margins and efficient asset utilization, signaling robust profitability and effective management.
Pricing Power: The ability to raise prices without losing customers is a potent sign of a company’s competitive advantage and its resilience to inflationary pressures.
No Credible Competition: We seek companies offering unique products or services for which there are few if any, credible substitutes, creating a protective moat against competition.
Reinvestment Runway: Businesses that have a long runway for reinvestment at high rates of return indicate a strong growth outlook.
Resilient Balance Sheet and Sales: We seek businesses that demonstrate financial strength and stability, with low cyclicality of sales and a robust balance sheet capable of weathering economic downturns.
Capital Efficiency: Companies that do not require significant capital for growth or sustainability demonstrate operational efficiency and can often generate higher returns for investors.
Expanding Moat: We value businesses that continually reinforce and broaden their competitive advantage over time.
Management Criteria
Shareholder Alignment: Management should share the long-term perspective of shareholders, aligning their interests with the creation of shareholder value.
Cost Focus: A cost-focused management team displays financial discipline, ensuring resources are efficiently used and value is maximized.
Rewarding Capital Allocation: Managers should prioritize shareholder returns in their capital allocation decisions, whether investing in growth, paying dividends, or repurchasing shares.
Per Share Value Creation: We value teams that focus on enhancing per-share value, not simply growing for growth’s sake. Cash flow per share is a more pertinent measure of value creation than mere revenue or earnings growth.
Investor Criteria
Quality Focus: Our primary aim is to identify the highest-quality investments, ones that will provide steady, robust returns over the long term.
Due Diligence: We commit to turning over every rock to find overlooked and potentially undervalued investment ideas. Rigorous research is our indispensable ally.
Critical Thinking: We think independently, cultivating a critical, skeptical mindset that resists herd mentality and challenges consensus views.
Circle of Competence: We invest only in businesses we understand thoroughly, confining our investments within our circle of competence.
Know What and Why: Understanding what we own and why we own it allows us to quickly admit and correct mistakes, and to respond effectively to changing circumstances.
Market Temperament: We view Mr. Market not as our guide but as our servant. We take advantage of market fluctuations when others succumb to fear, buying when prices are unjustifiably low.
Business Value, Not Stock Price: We don’t let short-term stock price movements cloud our judgment. We focus on the intrinsic value of the business, tracking its fundamentals over time.
Long-term Perspective: We base our investment thesis on the long-term prospects of a business relative to its current price. We are not traders, but investors, seeking to benefit from the long-term growth of excellent businesses.
This manifesto is our investment constitution. We are quality investors, and we pledge to adhere to these principles in our quest for long-term investment success. We recognize that the path may be rocky, but we are steadfast in our journey, knowing that our discipline, diligence, and patience will guide us to our destination.
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Short and sweet. Great post Simon.