The Three Main Categories of High Quality Businesses — and the One Category You Do Not Want to Invest In
Today’s an exciting show — we’re talking about business quality. Who doesn’t want to buy a quality business?
Business quality is a little bit of an amorphous term, but today we focus on thoroughly explaining what it is and why you should care about it as investor. We also put together a framework of categories for high quality businesses, such as: the organic grower, the mergers and acquisition machine, and the ATM machine (yes, we know that the M in ATM is machine.) And of course, since we talk about the businesses that are the most high quality, we also had to talk about what we call “the valley of death” — the category of businesses that we would never touch.
At the end of the day, any investment you make in a business, you want to get that investment back in the form of cold, hard cash. But to do that, you have to think not just about the price, but about the quality of the business.
[:27] About today’s topic: business quality.
[:41] Why, as an investor, should we care about business quality?
[1:59] Our first category of a high quality business: an organic grower.
[4:52] An example of an organic grower.
[6:48] The second category: a mergers and acquisition machine (“an inorganic grower.”)
[8:57] Some examples of a M&A machine.
[11:01] Our third category: an ATM machine.
[12:38] Examples of an ATM machine.
[14:18] The category of businesses that are (usually) not high quality: “the valley of death”.
[17:49] Wrapping up today’s show with our key point: “quality, quality, quality!”