Settling on Quality
There is no scientific way of finding the perfect combination off price and quality.
Uncovering real gems at an attractive price. Over time, you will find the right balance.
A good set of businesses at an attractive price.
For example, your portfolio may have
How can you reach this point of owning a portfolio of quality companies?
You have to progressively sell off stocks that did not meet the new philosophy and to only buy those meeting the quality requirements.
It will be slow work, requiring you to sell off cheap companies (gruesome companies) and to fight against your attachment to them.
You have to be convinced that this is the right way to go and you go all in.
Searching for quality is not about blindly following formulas.
While these are a good starting point, they remove the essential human element which is of such importance to some investors.
It is not enough to find a high ROCE and low P/E ratio.
You have to understand where the profits are coming from and above all, where they are headed. This is essential and you need to spend most of your time doing this.
The possible purchase price can be readily found in the daily newspaper or in real time online, but analysing a specific sector and the company's competitive position is what enables you to determine the intrinsic value, which is neither as obvious nor as easy to identify.
This is the great enigma of investment and you have to begin deciphering it.
There is no scientific way of finding the perfect combination off price and quality.
- Should we pay dearly for high quality?
- And anything for moderate quality?
- Obviously, paying little for quality would be ideal, but practically impossible.
Uncovering real gems at an attractive price. Over time, you will find the right balance.
A good set of businesses at an attractive price.
For example, your portfolio may have
- an average ROCE (the companies forming the portfolio) of over 40%,
- with a free cash flow yield of over 10%
How can you reach this point of owning a portfolio of quality companies?
You have to progressively sell off stocks that did not meet the new philosophy and to only buy those meeting the quality requirements.
It will be slow work, requiring you to sell off cheap companies (gruesome companies) and to fight against your attachment to them.
You have to be convinced that this is the right way to go and you go all in.
Searching for quality is not about blindly following formulas.
While these are a good starting point, they remove the essential human element which is of such importance to some investors.
It is not enough to find a high ROCE and low P/E ratio.
You have to understand where the profits are coming from and above all, where they are headed. This is essential and you need to spend most of your time doing this.
The possible purchase price can be readily found in the daily newspaper or in real time online, but analysing a specific sector and the company's competitive position is what enables you to determine the intrinsic value, which is neither as obvious nor as easy to identify.
This is the great enigma of investment and you have to begin deciphering it.
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