The Quality Series · part 1 of 13
People sometimes ask me, usually over dinner, what I actually do. The honest answer fits in one line: own shares in a small number of the finest businesses in the world, refuse to overpay for them, and have the patience to let compounding do the work.
Each of those three parts is harder than it sounds.
Finding them is not easy. Over the years I have built a universe of around 120 businesses that I know, understand and track. What earns a place is not a single good set of results but how the numbers behave across a decade; most companies that look excellent in one year look ordinary over ten.
Not overpaying is harder still, because the best businesses are rarely cheap. The market appreciates their quality and rewards it. So most of the work is waiting — for a fair price, or better, for a passing setback that the market treats as a permanent impairment.
And patience is the part almost nobody has. Not because they lack discipline, but because almost everyone in the industry is judged every quarter. A business compounds over years. The scorecard runs over months.
Why listed shares rather than private companies? They give the ownership mindset of private equity without the lock-up. They are liquid, they can absorb large sums, and the market’s own mood swings hand you the entry points.
This series sets down how I put that one line into practice, one piece at a time, in the order I actually think about it.
Apple’s free cash flow per share over twenty years (the cash a business has left after paying for its upkeep, divided by its shares). There are a few dips along the way, and anyone watching the next quarter would stop at each one. I look at the line as a whole: over twenty years it rises almost in a straight line, and that steadiness is what lets a business compound. A dip is a question, not a verdict — why did the cash fall that year? Often the answer is spending that will pay off for years to come.
Next: two companies that doubled their cash flow over the same five years, and why I would only pay up for one of them.
This is my personal investing journal, written for information only. It is not investment advice or a recommendation to buy or sell any security, and it does not take account of your circumstances. I may own shares in companies I write about. Past returns are no guide to future returns.
Leave a Reply