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Quality Investing

Owning the best companies for the long term

By Lawrence A. Cunningham , Torkell T. Eide , Patrick Hargreaves

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About the Authors

Lawrence A. Cunningham

Lawrence A. Cunningham has written a dozen books, including 'The Essays of Warren Buffett: Lessons for Corporate America', published in successive editions since 1996 in collaboration with the legendary Mr. Buffett; the critically acclaimed 'Berkshire Beyond Buffett: The Enduring Value of Values' (Columbia University Press 2014); 'Contracts in the Real World: Stories of Popular Contracts and Why ... Read more on Lawrence A. Cunningham

Torkell T. Eide

Torkell Tveitevoll Eide is a Portfolio Manager at AKO Capital. He rejoined AKO in 2013 from SKAGEN Funds in Norway where he spent four years as a Portfolio Manager on SKAGEN's $9 billion global equity fund. Prior to that Eide had spent three years at AKO Capital as an investment analyst, and before AKO he was a management consultant with McKinsey and Company in its Corporate Finance practice. ... Read more on Torkell T. Eide

Patrick Hargreaves

Patrick Hargreaves is a Portfolio Manager at AKO Capital. Before joining AKO in 2011, he spent eight years at Goldman Sachs where he ran the European Small & MidCap Research team before becoming deputy head of the Pan-European research department. Prior roles include stints at Cazenove and PricewaterhouseCoopers, where he qualified as a Chartered Accountant. Hargreaves has a degree in English ... Read more on Patrick Hargreaves

Contents Listing

Case studies
About the Authors
Acknowledgements
Preface
Introduction

1. BUILDING BLOCKS
A. Capital Allocation
B. Return on Capital
C. Multiple Sources of Growth
D. Good Management
E. Industry Structure
F. Customer Benefits
G. Competitive Advantage

2. PATTERNS
A. Recurring Revenue
B. Friendly Middlemen
C. Toll Roads
D. Low-Price Plus
E. Pricing Power
F. Brand Strength
G. Innovation Dominance
H. Forward Integrators
I. Market Share Gainers
J. Global Capabilities and Leadership
K. Corporate Culture
L. Cost to Replicate

3. PITFALLS
A. Cyclicality
B. Technological Innovation
C. Dependency
D. Shifting Customer Preferences

4. IMPLEMENTATION
A. Challenges
B. Mistakes when Buying
C. Mistakes of Retention
D. Valuation and Market Pricing
E. Investment Process & Mistake Reduction

Epilogue
Appendix
Endnotes
Index
Case studies
About the Authors
Acknowledgements
Preface
Introduction

1. BUILDING BLOCKS
A. Capital Allocation
B. Return on Capital
C. Multiple Sources of Growth
D. Good Management
E. Industry Structure
F. Customer Benefits
G. Competitive Advantage

2. PATTERNS
A. Recurring Revenue
B. Friendly Middlemen
C. Toll Roads
D. Low-Price Plus
E. Pricing Power
F. Brand Strength
G. Inn ...

Jacket Text

Quality. We all make judgments about it every day. Yet articulating a clear definition of quality in an investing context is challenging. This book addresses the challenge, and distills years of practical investing experience into a definitive account of this under-explored investment philosophy.

Finance theory has it that abnormal outcomes do not persist, that exceptional performance will soon enough become average performance. Quality investing involves seeking companies with the right attributes to overcome these forces of mean reversion and, crucially, owning these outstanding companies for the long term. This book pinpoints and explains the characteristics that increase the probability of a company prospering over time - as well as those that hinder such chances. Throughout, a series of fascinating real-life case studies illustrate the traits that signify quality, as well as some that flatter to deceive.

The authors' firm, AKO Capital, has a strong track record of finding and investing in quality companies - helping it deliver a compound annual growth rate more than double that of the market since inception. Quality Investing sheds light on the investment philosophy, processes and tough lessons that have contributed to this consistent outperformance.

Professional Reviews

"Investing is a continuous process of learning, and it will be a rare investor who does not glean substantive lessons from the notable AKO story of quality investing." - Stephen Blyth, President and CEO, Harvard Management Company, Professor of the Practice of Statistics, Harvard University

"Capturing both the science and the art that have driven AKO's success, Quality Investing is equal parts investing handbook and ode to the beauty of truly great businesses." - Peter H. Ammon, Chief Investment Officer, University of Pennsylvania

"Quality Investing answers the riddle of what you get when you cross Peter Lynch's One Up on Wall Street with Seth Klarman's Margin of Safety. By combining a discerning eye for sustainable growth with a disciplined calculus to buy over horizons when the probabilities are favorable, the book articulates a profitable approach to the art of investing." - Jason Klein, Senior Vice President & Chief Investment Officer, Memorial Sloan Kettering Cancer Center

"I recommend Quality Investing highly as a guide to harness the power of core investment principles. Shows why the best long-term 'margin of safety' comes not from an investment's price but from the value of a company's competitive advantage." - Thomas A. Russo, Partner, Gardner, Russo & Gardner

"Quality Investing, from a team of top quality investors, provides a clear and rigorous analysis of a highly successful, long-term investment strategy. In an increasingly short-term investment world, the book's insights are likely to remain hugely valuable." - Neil Ostrer, Founder, Marathon Asset Management

"Quality Investing describes a unique approach to evaluating investment opportunities based on real life examples and experience. Replete with interesting lessons and insights relevant not just for investors, but for any business leader seeking to build an enduring, high-quality company, Quality Investing is an outstanding book and should be required reading for business leaders and MBA students as well as for investors." - Henrik Ehrnrooth, President & CEO, KONE

"The book is a crisply-written mix of sound investment principles, insightful commercial patterns, and colorful business cases. A real pleasure to read." - Hassan Elmasry, Founder and Lead Portfolio Manager, Independent Franchise Partners

"AKO Capital were one of the first to recognise Ryanair's secret formula...An outstandingly handsome CEO, a brilliant strategy, all underpinned with our innate humility. These guys are geniuses. For a better life you must read this book...and fly Ryanair!!" - Michael O'Leary, Chief Executive, Ryanair

"Quality counts. If you are a long term investor, it's hard to find a more important factor as to what will power your ultimate investment returns. That said, quality is impossible to measure with precision because it often embodies more subjective qualitative factors than easily quantifiable measurements. Quality is also dynamic and changes over time. This book attempts through case studies, descriptions, and quantifiable measurement to help investors think systematically about quality and its importance. Enjoy!" - Thomas S. Gayner, President and Chief Investment Officer, Markel Corporation

"An indispensable addition to any value investing library, Quality Investing will appeal to novices and experts alike. Vivid real-life case studies make for an engaging read that shows the power of compounding that comes with owning high-quality businesses for the long term." - John Mihaljevic, "The Manual of Ideas"

"An excellent read: clear and insightful. Quality Investing is an important aid to shareholders when evaluating any company." - Albert Baehny, Chairman, Geberit

"Quality Investing is an outstanding resource for all investors seeking to enhance their knowledge of the critical drivers for investment success. Several important concepts for discerning and evaluating outstanding companies are clearly explained and further elaborated upon through many specific company examples. I highly recommend Quality Investing to all prospective investors from beginners to experienced practitioners." - Paul Lountzis, Lountzis Asset Management, LLC

"Beating the market is possible but not easy. Buying great companies at good prices tilts the probability of success in your favour. Quality Investing is an excellent aid for professional investors and motivated amateurs in tackling this perennial challenge. Read it and help improve your chance of investment success." - John Looby, Portfolio Manager, Kleinwort Benson Investors, founder and board member, Value Investment Institute


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Media Coverage

ValueWalk

Lawrence Cunningham is widely regarded as an expert on Warren Buffett and his book The Essays of Warren Buffett: Lessons for Corporate America, which is now in its fourth edition, has been labeled by ...

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Seeking Alpha

Quality aspect recognized by investing community long time ago (e.g. in Dividend Growth Investing) and recently popped out from leading academics (Robert Novy-Marx, Eugene F. Fama, Kenneth R. French, ...

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Strictly Value

Quality Investing is a great guide for investing in wonderful companies for the long term. The authors are portfolio managers at AKO Capital, supported by Prof. Lawrence Cunningham, who has compiled ...

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Reading the Markets

Quality Investing: Owning the Best Companies for the Long Term (Harriman House, 2016) by Lawrence A. Cunningham, Torkell T. Eide, and Patrick Hargreaves brings the principles that have made the ...

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Shares Magazine

MARKET DIPS SHOULD be viewed as buying opportunities for quality companies. If a business is high calibre, one would hope any equity valuation weakness is temporary and investor interest will revive ...

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ValueWalk

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 ...

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Master Investor

There are many ways in which investors come up with new stock ideas. Whether it be via perusing the charts through technical analysis, looking for low priced firms with fundamental value analysis or ...

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