Some notes on the book: Quality Investing
[THREAD]
[THREAD]
1/
3 characteristics of quality
- Predictable cash generation
- High returns on capital
- Attractive growth opportunities
3 characteristics of quality
- Predictable cash generation
- High returns on capital
- Attractive growth opportunities
2/
Ways to return capital
- Capex for growth
- S&M
- R&D
- M&A
- Buybacks
- Dividends
Ways to return capital
- Capex for growth
- S&M
- R&D
- M&A
- Buybacks
- Dividends
3/
Characteristics of good M&A
- Roll-ups
- Leveraging network benefits
- Two established brands (Oakley, Luxoticca)
Characteristics of good M&A
- Roll-ups
- Leveraging network benefits
- Two established brands (Oakley, Luxoticca)
4/
“In any sector it is important to assess whether competition at the micro level is as real as it seems at the macro level.“
This is really interesting. A typical example is when companies serve different markets (Fastly for high end, CloudFlare for SMB)
“In any sector it is important to assess whether competition at the micro level is as real as it seems at the macro level.“
This is really interesting. A typical example is when companies serve different markets (Fastly for high end, CloudFlare for SMB)
5/
“Products that go into the mouth or on the skin carry more pricing power than those that sit on a table or you put into a machine (toothpaste vs. detergent)”
I love how practical this is.
“Products that go into the mouth or on the skin carry more pricing power than those that sit on a table or you put into a machine (toothpaste vs. detergent)”
I love how practical this is.
6/
“The average Korean woman uses 11 beauty products and spends 40 minutes on her beauty regime.”
#pricingpower
“The average Korean woman uses 11 beauty products and spends 40 minutes on her beauty regime.”
#pricingpower
7/
Sources of customer benefits:
- Intangible (L’Oreal)
- Assurance (gases, testing - Bureau Veritas, Intertek, SGS)
- Convenience (Amazon)
Sources of customer benefits:
- Intangible (L’Oreal)
- Assurance (gases, testing - Bureau Veritas, Intertek, SGS)
- Convenience (Amazon)
8/
“A brand is a promise, an implicit guarantee of qualities or characteristics.”
“A brand is a promise, an implicit guarantee of qualities or characteristics.”
9/
Paraphrased
“A business linked to a customer’s capex is much trickier than one linked to opex.”
Paraphrased
“A business linked to a customer’s capex is much trickier than one linked to opex.”
10/
“To think is easy. To act is hard. But the hardest thing in the world is to act according to your thinking.”
- Goethe
Amazing quote. I feel like you could invert this though. Clear thinking should lead to action.
“To think is easy. To act is hard. But the hardest thing in the world is to act according to your thinking.”
- Goethe
Amazing quote. I feel like you could invert this though. Clear thinking should lead to action.
11/
Paraphrase
“Easier to explain that a stock is cheap than a business is great.“
So true.
Paraphrase
“Easier to explain that a stock is cheap than a business is great.“
So true.
12/
Successful patterns
- Recurring revenue (upfront is better b/c it locks out competition)
- Friendly middlemen (high priced contractors like doctors and plumber are less price sensitive and their reputation is on the line)
Successful patterns
- Recurring revenue (upfront is better b/c it locks out competition)
- Friendly middlemen (high priced contractors like doctors and plumber are less price sensitive and their reputation is on the line)
13/
Successful patterns continued
- Toll roads (oxygen suppliers for steel production)
- Lowest cost operators (Ryanair, Costco)
- Pricing power (Hermes)
- Brand (Diageo, Cartier, Ray Ban, Estee Lauder)
Successful patterns continued
- Toll roads (oxygen suppliers for steel production)
- Lowest cost operators (Ryanair, Costco)
- Pricing power (Hermes)
- Brand (Diageo, Cartier, Ray Ban, Estee Lauder)
End/
Quality Investing is a great book, written by the guys who run AKO Capital.
google.com/url?sa=t&rct=j…
Quality Investing is a great book, written by the guys who run AKO Capital.
google.com/url?sa=t&rct=j…
