Quality investing

What is quality investing?

This is a strategy where investors use clearly-defined criteria to identify companies likely to provide excellent returns on investment at a relatively low risk. The strategy aims to identify the companies of highest overall quality rather than the best in a specific field.

Where have you heard about quality investing?

The concept was first used in real estate, and was later advocated by the likes of Benjamin Graham and Jim Collins. It gained further traction after the dotcom bubble burst in 2001, as investors became more wary of seemingly-successful companies that could suddenly collapse.

What you need to know about quality investing.

The strategy uses both hard and soft criteria to judge the quality of a potential investment. Examples of the former include the strength of a company's balance sheet and its levels of operating cash flows. Soft criteria include the perceived quality of the firm's management, taking into account factors such as reputation and turnover of key staff. Other criteria include the company's business model and market position, taking into account both short and longer-term viability.

Find out more about quality investing.

One factor of a quality investment will be a high level of profitability.