How quality investing behaves through the cycle

Resilience when it matters more

clock • 4 min read

In the second of a two-part series on quality investing, Joseph Stephens and Laura Neill look at how quality businesses have performed through different market conditions, where the approach has struggled, and what this means for portfolio construction...

In part one of this series, we set out how we define quality: businesses that combine persistently high returns on capital with conservative balance sheets.  We also showed why that combination tends to persist - good companies generally stay good.  In this second article, we turn to what that persistence means in practice, and how quality businesses have tended to behave across different market environments. More positives, fewer negatives Quality persists partly because it is self-reinforcing. Management teams that allocate capital well tend to keep doing so, reinvesting where ...

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