This blog has never been designed to be an online literary salon, but I believe exceptional pieces of work are worth mentioning, especially in the area of finance & investing where mediocre quality and fuzzy ideas are too often the norm. I would be lying if I wrote that I spontaneously came up with this find; in reality a fellow investor highly recommended it to me. Let us end the suspense here: the book is called Quality Investing: Owning the Best Companies for the Long Term, was written by a trio (Lawrence A. Cunningham, Torkell T. Eide and Patrick Hargreaves) and has been available for purchase since January this year.
“Lawrence A. Cunningham has written a dozen books, including the Essays of Warren Buffett: Lessons for Corporate America”. The very first few words set the tone for the rest of the reading: quality investing is “a way to pinpoint the specific traits, aptitudes and patterns that increase the probability of a particular company prospering over time – as well as those that decrease such chances”. To anchor the concepts into reality the book contains more than 20 recent case studies), Cunningham partnered with two investment managers from AKO, a London-base hedge fund created in 2005.
Books dedicated to investing and corporate performance improvement invariably tackle the investment process from a narrow angle. A large number of those address financial statement analysis and intend to limit the corporate performance assessment process to the analysis of CAGRs and ratios. And yet, as rightly pointed by Cunningham and his co-authors, “growth forecasts and valuation measures […] are riddled with innumerable obscure and subjective judgements, ranging from accounting line items to appropriate discount rates“. Other books have conversely tried to holistically describe the various parameters of corporate strategy and business operations, an unreachable target that ultimately produce cumbersome and confused compendium of more or less interesting ideas. The fact that Cunningham & al. managed to summarise a range of aspects into a well-structure and digest (less than 200 pages) book should be regarded as a major achievement in that respect.
To be more specific, their work is structured in four parts, from the basic ‘building blocks’ of quality investing (part 1 which includes a word on my favourite vice, aka dividends and share buybacks) to typical ‘patterns’ that distinguish quality companies from their competitors (part 2) to common ‘pitfalls’ which may mislead the investor (part 3) and to the ‘implementation’ of such quality investment decisions (part 4).
The style is succinct, direct and easy to understand. No word seems redundant and the alchemy between the three authors (one professor, one former strategy consultant and one former investment banker) is unquestionable. The book will not provide you with a ‘plug-and-play’ process to successful investment – all books trying to do so have failed – but instead lists a series of considerations that you should include in your thinking before betting on a business.
Actually, for less than £25 purchasing this book is probably an easy ‘quality investment’ decision to be made.
My next post will partly relate to this notion of ‘quality investing’. In the meantime, you can watch Cunningham discuss his passion for Berkshire and investment strategies in the video below.