Quality Investing
Owning the best companies for the long term
By Lawrence A. Cunningham and Torkell T. Eide and Patrick Hargreaves
Quality Investing
Owning the best companies for the long term
By Lawrence A. Cunningham and Torkell T. Eide and Patrick Hargreaves
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.
About the author
Lawrence Cunningham's two dozen books include The Essays of Warren Buffett, which Cunningham self-published into an international best-seller that he has arranged for translation into a dozen languages.
An influential thought leader in both value investing and corporate governance, Cunningham's other notable books include Quality Investing (long time best seller with AKO Capital), The AIG Story (with Hank Greenberg) and Margin of Trust (which Warren Buffett singled out for special mention in his 2020 letter to Berkshire Hathaway shareholders).
Cunningham advises companies, boards and shareholders, currently as the founder of Quality Shareholders Group and special counsel at Mayer Brown LLP. He has served on numerous corporate boards, of both private and public companies, including Constellation Software Inc., where is currently vice chairman, and Kelly Partners Group.
About the author
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. Eide has a first-class degree in Economics from the London School of Economics and Political Science.
About the author
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 Literature from Oxford University.
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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“The book is a crisply-written mix of sound investment principles, insightful commercial patterns, and colorful business cases. A real pleasure to read.”
“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!!”
“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!”
“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.”
Media coverage
From Money Week:
The book begins with the basics of what to look for when searching for quality companies, especially the importance of choosing firms that have a good return on capital and a strategy for dealing with competition. Next, it moves on to what the authors call the “patterns” that successful companies follow. The third section deals… Read more »
From MoneyWeek:
However, there are surprisingly few books about the qualitative (as opposed to quantitative or technical) factors that investors should look for when searching for a company that they can buy and hold. Quality Investing aims to fill this gap. … Quality Investing is an informative book that justifies its £35 cover price, and which provides… Read more »
From Academia de Inversion:
Quality Investing has been a book that I have loved and I recommend without a doubt.
From 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 simply by following the ideas of others, all are common and well ingrained approaches. But one often overlooked aspect of stock selection… Read more »
From 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 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… Read more »
From 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 Warren Buffett?s letters and written Berkshire Beyond Buffett. The authors identify three characteristics of quality companies: strong, predictable cash generation; sustainably high returns on… Read more »
From 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 London-based AKO Capital a successful equity fund to the investing world at large. Three characteristics indicate quality: ?strong, predictable cash generation; sustainably high returns on… Read more »
From 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, Clifford S. Asness et.al.). New excellent book “Quality Investing: Owning the Best Companies for the Long Term” written by Lawrence A. Cunningham, Torkell T. Eide, Patrick… Read more »
From 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 the share price in time. Telecom Plus (TEP) is a good example; a profit warning in 2015 was seen as a short-term issue, not… Read more »
Contents
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
| Published: | 05/01/2016 |
|---|---|
| Edition: | 1st |
| Pages: | 224 |
| Formats: | hardback - ISBN 9780857195128 ebook - ISBN 9780857195012 audio - ISBN 0000000000020 |
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