Millennial Investing - The Investor’s Podcast Network

MI367: How to Invest in the Best of the Best: Quality Investing w/ Shawn O'Malley

Sep 2, 2024

54:56

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Shawn O'Malley, an expert in Quality Investing strategies, shares insights on how to identify outstanding companies for long-term ownership. He distinguishes Quality Investing from value investing by emphasizing a buy-and-hold approach. O'Malley discusses the critical role of pricing power in top-tier companies and explores Chuck Akre's unique three-legged stool framework. The conversation reveals Jim Collins' research on enduring firms and Chris Mayer's methods for uncovering potential 100-to-1 stocks, making a compelling case for viewing quality investing as an art.

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Quick takeaways

Quality investing prioritizes owning exceptional companies for the long term, focusing on resilience and performance rather than short-term price fluctuations.

Strong competitive advantages and stable financials, characterized by wide economic moats, are essential indicators of high-quality companies for long-term investments.

Effective management aligned with shareholder interests is crucial for quality companies, often leading to superior performance and stability over time.

Deep dives

Understanding Quality Investing

Quality investing focuses on owning exceptional companies that are capable of delivering long-term compounded returns, distinguishing itself from value and growth investing strategies. Quality investors typically assess a company's resilience and performance over the long haul, often holding onto their investments even during periods of high valuation. This approach encourages an emphasis on a company's competitive position, durability, and the ability to consistently generate earnings. Thus, quality investors prioritize businesses that meet their criteria for quality, often described as companies that are positioned to thrive over decades.

Intro

4min

Understanding Quality vs. Value Investing

5min

Understanding Quality Companies and Pricing Power

4min

Exploring Luxury Driving and Innovative Financial Solutions

2min

The Essentials of Quality Investing

21min

Quality Compounders: Investing for the Long Run

14min

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down different investors’ approaches to finding the best of the best companies to own. It’s a strategy known as Quality Investing, and it differs from value investing because quality investors are more focused on finding companies to own forever, as opposed to selling them if they rise above their current intrinsic value.

You’ll learn how definitions of quality vary, how quality investing is still rooted in value investing, what the patterns and building blocks of high-quality companies are, why pricing power is a great way to identify quality businesses, how Chuck Akre approaches quality investing, what Jim Collins’ research on enduringly great companies reveals, and how Chris Mayer finds stocks with 100-to-1 returns—plus so much more!

IN THIS EPISODE, YOU’LL LEARN

00:00 - Intro

02:15 - How Quality Investing traces back to Ben Graham

03:10 - What quality investing is generally, and how it differ from other strategies

03:32 - What are the patterns and building blocks of quality businesses

07:51 - Why pricing power is so important to quality stocks

12:37 - How Chuck Akre’s three-legged stool approach to quality investing works

22:12 - What Jim Collins’ intensive study of enduringly great companies reveals for investors

29:57 - How Chris Mayer finds stocks that generate 100-to-1 returns

32:46 - How to define and determine whether a company has a winning corporate culture

41:55 - Why quality investing is really an art form

And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Kyle and the other community members.
Compounding Quality’s Investing Philosophy.
Three-Legged Stool Masterclass.
Chris Mayer’s blog
Jim Collins' book, Built to Last.
Thomas Peters' book, In Search of Excellence.
Michael Porter's book, Competitive Advantage.
Lawrence Cunningham's book, Quality Investing.
Thomas Phelps' book, 100 to 1 in the Stock Market.
Jim Collins' book, Good to Great.
Chris Mayer's book, 100 Baggers.
Long Equity's book, The Intelligent Quality Investor.
Check out the books mentioned in the podcast here.
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