Barron's Live What is "Quality" Investing?
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Jun 16, 2025 Tom Hancock, a portfolio manager at GMO and head of the Focus Equity team, dives into the nuances of quality investing. He discusses key traits that define quality stocks and the importance of balancing quality with valuation in a volatile market. Hancock analyzes technology investments, including the Magnificent Seven and NVIDIA's status as a leader. The conversation also explores current challenges in the housing market, the pharmaceutical industry, and the strategic outlook for companies like Alphabet, all while underscoring the significance of long-term investment strategies.
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GMO's Definition of Quality Investing
- Quality investing at GMO focuses on sustainable, above-average profitability and business durability.
- Such companies have moats and resilience, justifying premium valuations despite higher prices.
Screening for Quality Stocks
- Start quality investing with screening metrics like return on equity, balancing profitability over a cycle and stability.
- Also consider balance sheet strength via debt to equity or EBITDA metrics before deeper fundamental analysis.
Balancing Quality and Valuation
- GMO balances quality with valuation by buying high-quality companies at reasonable prices and avoiding overpaying.
- They will sell if a stock becomes too expensive beyond fair value despite its quality.