Book review: Quality Investing
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 capital; and attractive growth opportunities. The main part of the book describes the features and patterns of quality investments, including an appealing industry structure, high-value customer benefits, competitive advantages like low-cost production. The book contains around 20 helpful case studies of quality European companies. These include not only well-known consumer brands like Unilever, L?Oréal, Hermès, Diageo but also less obvious names, such as:
Svenska Handelsbanken, the only bank featured. This bank was already mentioned in the book Capital Returns reviewed here and analyzed in the Value and Opportunity blog.
Geberit, for its clever usage of ?friendly middlemen? ie. plumbers (cfr. Legrand with electricians).
Assa Abloy, a successful bolt-on M&A dealmaker.
Ryanair, the low-cost champion.
Luxottica and Fielmann in the optical industry.
One of the four chapters is devoted to pitfalls, including technological innovation (Nokia), cyclicality (Saipem), good-enough goods (Nobel Biocare). The text is well structured and very clear; the case studies bring the concepts to life. According to Warren Buffett, investment students need only two well-taught courses: How to Value a Business, and How to Think about Market Prices. By providing the qualitative building blocks to identify great business, Quality Investing is a great book to support the first Buffett course. Highly recommended!
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