QUALITY BUSINESSES

“We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.” Charlie Munger

“The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.” Benjamin Graham

"Our goal is to find outstanding businesses at sensible prices, not a mediocre business at a bargain price" Warren Buffett

"See's Candy - it was acquired at a premium over book [value] and it worked.  Hochschild, Kohn, the department store chain was bought at a discount from book and liquidating value.  It didn't work.  Those two things together helped shift our thinking to the idea of paying higher prices for better businesses" Charlie Munger

"Charlie made me focus on the merits of a great business with tremendously growing earnings power - but only when you can be sure of it - not like Texas Instruments or Polaroid, where the earnings power was hypothetical."  Warren Buffett

“I much prefer to be long a good business, so we focus on buying growth at a reasonable price.” Larry Robbins

"Our interest starts first with the quality of the business."  Jeffrey Ubben

"I look for good businesses.  A good business is one that provides a necessary service or products and has a balance sheet and cash flow that can sustain it through difficult periods"  Kevin Daly

“You have to focus first and foremost on high-quality businesses that can’t blow up and should grow in value over time” Bill Ackman

“Our strategy is to own high quality, modestly valued business over many years, to take advantage of the power of compounding as earnings grow. To do that successfully only works if we avoid mistakes – unforced errors – that interrupt the power of compounding” Ira Rothberg

“We’re committed to owning high-quality businesses in industries we understand and can underwrite.” Adam Weiss

"I think you ignore business quality and management integrity to your peril when allocating capital"  Robert Vinali

"I started out looking for cheap securities...  Over time, I really fell in love with strong businesses. I morphed into finding strong businesses at bargain prices.  I still have a streak in me that favours finding really cheap securities - I just can't help it.   But over time, I've become more attracted to looking for great businesses that are inherently superior, more competitive, easier to predict, and with strong management teams"  Li Lu

“What we learned is that if you buy a good and sustainable business, then over time the return of that business will do the natural compounding for you”  William Browne

“Our preference is for high quality businesses that are easily understood. This alone eliminates the majority of investment alternatives, allowing us to focus our resources on understanding simple businesses without distraction from the noise outside of our circle” Chris Parvese

“Our resulting style in the partnership is to try and find outstanding businesses, to understand their true value, and when the price is reasonable, purchase shares.” Chuck Akre

“The practice of not losing money is significantly advanced by the selection of superior businesses, because their royalty keeps on working in spite of general business conditions and isolated poor managerial decisions.” Chuck Akre

“This isn’t unique to us, but we want companies with large amounts of free cash flow, good business dynamics, a proven ability to profitably reinvest that cash flow and management properly incentivized to do the right thing for shareholders. We generally focus on businesses that are “two-cycle tested,” where they’ve been through a couple recessions and have survived intact.”  Leon Cooperman

"We don't want any lousy businesses.  We used to make money buying them and wringing money out, but it is painful, especially when you're rich.  Sometimes it happens by accident, and then it is like dealing with your relatives and you hope to get rid of them but can't really"  Charlie Munger

“If you’re in a lousy business for a long time, you’re going to get a lousy result even if you buy it cheap.”  Warren Buffett

"I tend to avoid the shares of weaker companies, even if their shares are selling at depressed prices.  I strongly prefer purchasing undervalued shares of strong and well-positioned companies" Ed Wachenheim

"With respect to quality businesses, the key aspects are unit economics, returns on capital, appropriate leverage, free-cash conversion, market share, margin resiliency, moat, long-term growth potential, and management. The motivation for focusing on these types of businesses is that they blow up less frequently, and even if they do blow up, they do so with less severity.  High-quality businesses also provide natural tailwinds to returns by virtue of their economics, and their resiliency enables portfolio concentration, which is valuable because it affords the opportunity to perform deep primary research." Adam Weiss

“What makes a good business model? It primarily rests on structural competitive advantages, those inherent features that prevent rivals from entering a company’s business and/or competing effectively with it. Common examples would be natural monopolies or oligopolies, razor/ razorblade businesses, enduring brands, network effects, high switching costs and economies of scale. Perfect business models don’t exist, but many come close to varying degrees.” Frank Martin

"People don't believe business quality is a hedge, but if your valuation discipline holds and you get the quality of the business right, you can take a 50 year flood, which is what 2008 was, and live to take advantage of it"  Jeffrey Ubben

"We think a rigorous discipline of buying quality companies, when priced right and run by honest, intelligent management teams, offers the best defence against challenging macro conditions" Allan Mecham

"I’m most interested in owning good businesses, run by managers who don’t make big mistakes." Ed Wachencheim

"A great business at a fair price is superior to a fair business at a great price." Charlie Munger

"One characteristic that makes owning a high quality company so attractive is the growth that comes from reinvesting cash flows at high rates of return.  Clearly compounding is a powerful force and is often the reason a stretched valuation can be made palatable"  Marathon Asset Management

“A base business cannot be transformed into a golden business by tricks of accounting or capital structure.  The man claiming to be a financial alchemist may become rich.  But gullible investors rather than business achievements will usually be the source of his wealth”  Warren Buffett

“Almost by definition, a really good business generates far more money (at least after its early years) than it can use internally”  Warren Buffett

"Business quality to us is the single most important criterion for determining what's interesting" Bill Ackman

"The main thing is to find a wonderful business, like Phil Carret always did. He’s one of my heroes, and that’s an approach he’s used"  Warren Buffett

"It is really trying to find high quality businesses where we have a lot of confidence in the business.  If we make a mistake it is going to be that we mis-analysed the businesses - it was not as good as we thought"  Glenn Greenberg

"Shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long term" Lou Simpson

"The single-most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business. I’ve been in both, and I know the difference." Warren Buffett

"Over the long term, it's hard for a stock to earn a much better return than the business which underlies it.  If the business earns 6% on capital over 40 years and you hold it for 40 years, you're not going to do make much different than a 6% return even if you buy it at a huge discount.  Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.  So the trick is getting into better businesses" Charlie Munger

"Bear in mind--this is a critical fact often ignored--that investors as a whole cannot get anything out of their businesses except what the businesses earn. " Warren Buffett

“Good is the enemy of great.  We see many companies that are just fine ... founders are good, market seems good, product seems good, customers kinda like it, and they got a little revenue and it's all fine, but those companies tend to never go anywhere.  Every once in a while we'll see these companies that have some extremely strong strength, some extremely special wonderful thing going on, that by the way may have all kinds of problems and issues, but there's something at the core of what it is that's really special and magical.  And those are the ones that we want to do.  We're trying to stock our portfolio with just investments like that."  Marc Andreessen

"Ira Marshall said [in reference to See's Candy] you guys are crazy - there are some things you should pay up for, like quality businesses and people. You are underestimating quality.  We listened to the criticism and changed out mind.  This is a good listen for anyone, the ability to take the criticism constructively and learn from it"  Charlie Munger

"From 1932 to nearly the present, the studies confirm that when bad things happen to good companies, they recover - and usually quite nicely in a reasonable amount of time" Chris Browne 2007

"At the end of the day, in order to build wealth, there is a simple approach which we have followed for 17 years at Giverny Capital: investing for the long term in high-quality companies purchased at attractive valuations—investing in companies that will survive the crises of our civilization and the short-term irrationally of our economic system." Francois Rochon

"Generally speaking, it pays to stay away from declining businesses. They are very difficult to value. We have several declining businesses - the newspaper business is a declining business. We will pay a price to be in that business but that is not where we are going to make a lot of money. All the money at Berkshire is going to be made from investing in growing businesses.  I would never spend a lot of time trying to value a declining business that I call a cigar butt (one last free puff out of the business). I can spend the same amount of energy and intelligence analysing a growing business and am going to get a better outcome. At Berkshire, we have some declining businesses. We started with declining businesses, textiles, US made shoes, Blue Chip Stamps  - We have one business that did $120 million in sales in 1968 and last year did about $20,000 in sales. We'd like to bring the sales chart out and put it upside down" Warren Buffett

"We buy good companies that we know will endure, that generate free cash usually in and out of recession" Chris Mittleman

"When we talk about business quality, we’re looking through our fundamental research to assess the company’s ability to protect and grow intrinsic value. If the dollar of assets you buy is increasing in value at an above-average rate, that’s an opportunity to generate alpha."  Ricky Sandler

"Charlie and I are simply not smart enough to get great results by adroitly buying and selling portions of far-from-great businesses" Warren Buffett

"Is it a great business? That’s the key question. Is it earning high returns on capital and command high margins? Does it have a good history of growing its intrinsic value and rewarding shareholders? Warren Buffett has this great phrase: “If a company has a lousy past and a great future, we’ll miss it.” It’s the same thing here"  Francois Rochon

"I would prefer a great business, great manager, one that is able to use all the capital they generate and can keep doing that. Behind that will be a great business, great managers that can use the capital; and then great business, not such great manager, and then we just go down the line.  Not such a great business, not such a great manager, but still out to achieve and we will probably still make out.  We have made investments in all of those and I learned over time that I am better off being more on the top than at the bottom end" Mohnish Pabrai

"By owning great companies, you can just forget about all the noise and the irrational market fluctuations. And slowly get rich." Francois Rochon

"We look for very high quality businesses, what we'd describe as simple, predictable, free-cashflow generative dominant businesses.  A business Warren Buffett would describe as having a moat around it"  Bill Ackman

"The requirements for a great business for us have three components. The first is, we spend a lot of time trying to understand what is causing the above average return to occur.  Is it getting better or worse?.  The second thing we look for are the people who run the business.  Not only do we want to have great business managers but we want see they treat public shareholders as partners even as though don't know them.  Lastly, we look to see if there is a great history of reinvestment of the free cash-flow as well as a significant opportunity to reinvest free cash-flow and earn above average rates of return.  None of those things ever behave in a constant fashion.  Business models get better or worse. Peoples behaviour sometimes change modestly.  The ability to reinvest or the results from re-investment vary from time to time. We make a judgement about which are real keepers"  Chuck Akre

"Characteristics of a good business include businesses that provide a demonstrable convenience to customers or a high value-added product or service, businesses capable of withstanding industry turmoil or a period of mismanagement, slowly evolving businesses with simple business models, businesses with recurring revenue streams and no need to continually recreate demand and/or replace customers, businesses with a minimum of uncontrollable factors affecting their results, businesses that do not have a concentrated customer base, and businesses that generate surplus cash flow after funding their growth." Jeffrey Ubben

"The idea is not just to find cheap businesses, but to find good businesses!. I learned that a cheap business can kill you, but a good business won't. I remember investing in a Spanish textile company that was selling below net cash. The stock was cheap, but the business was so lousy that the management team not only failed to keep it operating, but also lost all of its cash and assets. So sustainability and quality matter!." Francisco Garcia Parames

"Inferior quality generally produces inferior economics"  Warren Buffett

"My investment mistakes are too numerous to list here.  I noticed a few years ago that two common threads ran through all my investing mistakes.  The first was that I was buying inferior businesses due to what I perceived at the time to be a low multiple (but alas not a low valuation).  The second was that I was buying inferior businesses due to the prospect of a fast buck or what analysts term a catalyst" Robert Vinali

"Buying Berkshire Hathaway itself was a mistake because Berkshire was a lousy textile business and I bought it very cheap.  I'd been taught by Ben Graham to buy things on a quantitative basis and look around for things that are cheap. I was taught that in 1949-50 and it made a big impression on me.  So I went around looking for what I call used cigar butts of stocks.  You find on the street this terrible looking soggy cigar butt with one puff left in it, disgusting but it's free, it's cheap.  Then you look for the next one.  That's what I did for years.  It's a mistake. Although you make money doing it you can't make it with big money.  It's so much easier buying wonderful businesses.   Now I'd rather buy a wonderful business at a fair price that a fair business at a wonderful price.  Berkshire was selling below it's working capital per share, you got plants for nothing, you got machinery for nothing, you got the inventory and receivables at a discount. It was cheap, so I bought it and twenty years later I was still running a lousy business and that money did not compound.  Time is the friend wonderful business, you keep compounding.  Time is the enemy of the lousy business. Staying with those businesses is a mistake." Warren Buffett

"It must be noted that your Chairman, always a quick study, required only 20 years to recognize how important it was to buy
good businesses.  In the interim, I searched for "bargains" - and had the misfortune to find some.  My punishment was an education in the economics of short-line farm implement manufacturers, third-place department stores, and New England textile
manufacturers." Warren Buffett 1987

“I have a bias towards quality businesses, especially family-owned. Many of our value competitors start the process of identifying likely investments by starting with price.  Looking at a screen.  We don’t believe in those screens.  Cheap looking stocks will end up on screens. They will be either the lousiest competitors in an industry or operating in industries which are overly competitive.  What makes us want to investigate a stock idea - it’s not that it looks cheap - but if there seems to be something unique or superior about it. It may not optically look cheap.” Charles De Vaulx

"The ability to raise prices – the ability to differentiate yourself in a real way, and a real way means you can charge a different price – that makes a great business." Warren Buffett