Quality Investing: Owning the Best Companies for the Long Term is a new book authored by Lawrence Cunningham, Torkell T. Eide and Patrick Hargreaves, which outlines the investment philosophy of London-based hedge fund AKO Capital, and the lessons its portfolio managers.
AKO is a London-based fund with $10 billion AUM, and has, under the stewardship of portfolio managers Torkell T. Eide and Patrick Hargreaves, achieved a return of more than double the market (9.4% per annum versus Europe?s 3.9%) since inception a decade ago.
Quality Investing: Owning the Best Companies for the Long Term
Quality Investing is, as its name implies, details the key qualities that investors should look for in high-quality businesses that can stand the test of time and fend off competition. Warren Buffett pioneered the quality-at-a-reasonable price approach and has become one of the richest men in the world by following this strategy long-term.
Quality Investing does not guarantee it will help you achieve the same results, but it will help you build a checklist; a tool that will dramatically increase your chances of outperforming over the long-term.
A handbook for investors
Quality Investing initially began as a handbook for new employees of AKO Capital, but with the help of renowned professor Lawrence Cunningham, the Buffettologist, Quality Investing has become an instruction manual for investors to follow and construct their own investment checklists, streamline their investment process and improve returns.
Henrik Andersson: Quality Investing Requires Patience And Long-Term Mindset
The book guides readers step-by-step through AKO?s investment process, split across four chapters: 1) Building Blocks, 2) Patterns, 3) Pitfalls and 4) Implementation.
Chapter one, as the heading suggests, details the building blocks any high-quality business must have in place in order to attempt to succeed in the long-term. These blocks include sources of growth, return on capital, a competitive advantage and good management.
Chapter two moves on to taking a closer look at the product or service the business provides, here AKO looks at data points such as brand strength, pricing power, innovation dominance, cost to replicate and global capabilities.
Chapter three looks at the possible speed bumps that can slow down a company?s growth or lead to a loss of market share. While these trends are hard to spot until it?s too late, Quality Investing offers some traits to look for that could indicate that the company in questions sales are under pressure.
Quality Investing Works Best In Equity Markets
The final chapter of the book looks at the implementation of the strategy, although this chapter is more of a loose guide of what to do, and what not to do with your portfolio. In keeping with the rest of the book, chapter four offers guidelines to improve your investing process.
Throughout Quality Investing, the authors use real-world case studies to illustrate their points and highlight how the best quality companies out manoeuvre the competition to achieve the best results for investors. These case studies are the closest the book comes to advising investors which stocks to buy in order to achieve the best results. Short case studies on Assa Abloy, Diageo, Geberit, Luxottica, Rolls Royce, L?Oreal, Atlas Copco, SGS, Intertek, John Deere, Unilever, Syngenta; Wärtsilä, Kone, Chr. Hansen, Ryanair, Hermés, Novo Nordisk, Handelsbanken, H&M, Inditex, Nike and Experian are all included. These are companies that AKO likes and has invested in over the years and they all exhibit some, or all of the traits of a high-quality investment with a wide economic moat.
Unfortunately, Quality Investing leaves one essential part of the investment process out and that?s valuation. At no point in the book do the authors reveal AKO?s secret sauce for valuation and lay out a clear-cut evaluation process.
The Moneyball Of Quality Investing
That being said, it?s not difficult to research the different strategies out there, and while it?s disappointing that a valuation methodology is not provided in the book, I believe that the book doesn?t need it. The book?s lessons are easily transferable to different investment strategies.
Conclusion
So overall, if you don?t care about the qualitative side on investing and only invest based on valuation with no regard to underlying business fundamentals or the long-term, Quality Investing isn?t for you.
However, if you?re looking for a rigorous step-by-step guide to seeking out the best quality investments for the long-term, then Quality Investing is an essential read.And if you?re looking for more information on the book, check out ValueWalk?s
And if you?re looking for more information on the book, check out ValueWalk?s exclusive interview with co-author Lawrence Cunningham.
