Common sense is the heart of... - Lawrence A. Cunningham - Quotes.Pub

Common sense is the heart of investing and business management.

How to Think Like Benjamin Graham and Invest Like Warren Buffett Quotes Investment Quotes

Lawrence A. Cunningham Quotes

What, then, is Berkshire’s moat? The answer: Berkshire’s distinctive corporate culture. Berkshire spent the last five decades acquiring a group of wholly owned subsidiaries of bewildering variety but united by a set of distinctive core values. The result is a corporate culture unlike any other. And this is Berkshire’s moat.

What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.

much diversification is really diworsification.

Quality Investing: Owning the best companies for the long term Quotes

Given the specialized niche and deal size, there is scant competition in this acquisition market, enabling Essilor to purchase companies on attractive terms (such as six to seven times cash flow). This ability to systematically improve the operations of acquired businesses is rare but can create significant value.

Quality Investing: Owning the best companies for the long term Quotes

financial statements classify advertising costs as expenses, they are often better conceived of as investments. This reclassification makes sense because advertising is also a far more flexible expenditure than most costs. Amid challenging economic times, advertising can be scaled back relatively quickly, adding agility to protect and manage cash flows. However,

Quality Investing: Owning the best companies for the long term Quotes

Valuation premiums of quality companies often reflect some degree of expected operational outperformance, but actual performance tends to exceed expectations over time. Stock prices thus tend to undervalue quality companies.

Quality Investing: Owning the best companies for the long term Quotes

The value any business creates, listed or not, is determined by the rate at which it deploys incremental capital. And

Quality Investing: Owning the best companies for the long term Quotes

Opportunities for growth maximize the benefits derived from high returns on capital. Such opportunities can arise from market growth, either cyclical or structural, or through a firm grabbing share from rivals in existing markets or expanding geographically. The very best companies enjoy a diversified set of growth drivers through ingenuity in the design of products, pricing, and product mix.

Quality Investing: Owning the best companies for the long term Quotes

best businesses to own are those in which end markets are growing rather than shrinking. Absent

Quality Investing: Owning the best companies for the long term Quotes

The profound point is that the critical link between growth and value creation is the return on incremental capital. Since share prices tend to follow earnings over the long term, the more capital that can be deployed at high rates of return to drive greater earnings growth, the more valuable a company becomes. Warren Buffett summarized the point best: “Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”4 The best investments, in other words, combine strong growth with high returns on capital.

Quality Investing: Owning the best companies for the long term Quotes

sustained high gross profit margins relative to industry peers tends to indicate durable competitive advantage. Zeroing

Quality Investing: Owning the best companies for the long term Quotes

Gross profit margin demonstrates competitive advantage: it is the purest expression of customer valuation of a product, clearly implying the premium buyers assign to a seller for having fashioned raw materials into a finished item and branding it.

Quality Investing: Owning the best companies for the long term Quotes

high capital intensity companies can also be attractive, especially where the capital requirement confers stability and deters entrants.

Quality Investing: Owning the best companies for the long term Quotes

Asset-light industries are attractive since they require less capital to be deployed in order to generate sales growth. The finest examples are franchise operations, such as Domino’s Pizza, where growth is funded by franchisees rather than by the company. Other

Quality Investing: Owning the best companies for the long term Quotes

To achieve sustained high returns on capital requires possessing features that protect returns from competition; namely, competitive advantages. Identifying what these competitive advantages are and understanding their sustainability is an essential part of the quality investment process.

Quality Investing: Owning the best companies for the long term Quotes

Quality investing focuses on a company’s ability to invest capital at high rates of return: post-tax levels of high-teens (and higher) are possible. Three elements drive corporate cash return on investment: asset turns, profit margins and cash conversion. Asset turns measure how efficiently a company generates sales from additional assets, which can vary greatly depending on the asset intensity of the industry itself; margins reflect the benefits of those incremental sales; and cash conversion reflects a company’s working capital intensity and the conservatism of its accounting policies.

Quality Investing: Owning the best companies for the long term Quotes

we are confident that the fundamental principle of long-term ownership of quality companies is a sensible one, new

Quality Investing: Owning the best companies for the long term Quotes

Quality is never an accident;it is always the result of intelligent effort.” John Ruskin

Quality Investing: Owning the best companies for the long term Quotes

companies that tie up very little extra working capital with incremental sales tend to be more attractive.

Quality Investing: Owning the best companies for the long term Quotes

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