Quality Investing

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 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 Revenues
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: AKO Capital and AKO Foundation
End Notes