Millennial Investing - The Investor’s Podcast Network

MI314: The Art Of Quality Investing w/ Compounding Quality

Dec 26, 2023

01:12:06

Snipd AI

The podcast discusses the benefits of quality investing, the importance of returns on invested capital as a metric, the success of founder-led businesses, different types of moats a business can have, and the qualities of a successful investor. It also explores the significance of return on invested capital and reinvestment opportunities, discusses Ulta Beauty as a cannibal stock, and analyzes the quality metrics of Evolution Gaming.

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Episode notes

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Quick takeaways

Quality investing focuses on buying wonderful companies at a fair price and involves investing in companies with competitive advantages, strong capital allocation skills, high profitability, low capital intensity, and exposure to favorable secular trends.

The guest on the podcast shares their personal investment journey, highlighting the importance of making early investment mistakes to learn and grow as an investor, and how they were influenced by Warren Buffett's philosophy and the concept of quality investing.

Return on invested capital (ROIC) is a key metric for quality investors, indicating management's efficiency in allocating capital, and being a quality investor requires long-term thinking, discipline, patience, and an ongoing dedication to learning.

Deep dives

The Importance of Quality Investing

Quality investing, as opposed to value investing, focuses on buying wonderful companies at a fair price. Warren Buffett is recognized as a quality investor, emphasizing the significance of investing in companies that meet specific criteria. These criteria include the average return on equity over the past 10 years being larger than 20%, and no single year over the past decade having a return on equity lower than 10%. Quality investing involves investing in companies with competitive advantages, strong capital allocation skills, high profitability, low capital intensity, and exposure to favorable secular trends. By applying a buy and hold strategy to quality investments, investors can benefit from long-term growth and avoid excessive trading costs.

Introduction

3min

Journey into Quality Investing

17min

The Importance of Return on Invested Capital (ROIC) for Investors

7min

ROIC, Reinvestment Opportunities, and Stock Prices

23min

Ulta Beauty's Implied Growth and Cannibal Stock

6min

Qualities of a Good Investor

18min

Analyzing the Quality Metrics of Evolution Gaming

3min

Kyle Grieve chats with Compounding Quality about the benefits of quality investing, the tenets of a quality business, why returns on invested capital are the most important metric for measuring quality, the aspects of a quality management team, the attributes of a successful investor, the simple way to measure the returns of an investment, and a whole lot more!

IN THIS EPISODE, YOU’LL LEARN

00:00 - Intro

07:28 - Why investing in quality is so attractive to investors.

12:40 - The data behind the success of founder-led businesses.

12:40 - Key investing lessons from Warren Buffet, Terry Smith, and Chuck Akre.

33:12 - Why do businesses with high and sustainable returns on invested capital make such a great investment?

28:33 - A simple breakdown of the different types of moats a business has.

47:43 - Why thinking long-term, patience, discipline, and continuous learning are integral for investment success.

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.
Read Compounding Quality’s Substack here.
Buy yourself a copy of Investing For Growth By Terry Smith here.
Buy yourself a copy of Quality Investing by Lawrence Cunningham, Torkell T. Eide, and Patrick Hargreaves here.
Buy yourself a copy of Quality Shareholders by Lawrence Cunningham here.
Buy yourself a copy of The Founder's Mentality: How to Overcome the Predictable Crises of Growth by Chris Zook and James Allen here.
Buy yourself a copy of The Checklist Manifesto by Atul Gawande here.
Buy yourself a copy of Stock’s For The Long Run By Jeremy Siegel here.
Check out the books mentioned in the podcast here.

NEW TO THE SHOW?

Check out our Millennial Investing Starter Packs.
Browse through all our episodes (complete with transcripts) here.
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Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets.
Learn how to better start, manage, and grow your business with the best business podcasts.

SPONSORS

Support our free podcast by supporting our sponsors:

Connect with Kyle: Twitter | LinkedIn | Website

Connect with Compounding Quality: Twitter | Substack

Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

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Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

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