In Search of Quality: More Than a Buzzword
At Aristotle Capital Management (Aristotle), we have three core tenets to our investment process: we seek to invest in high quality businesses, trading at attractive valuations, where there are company-specific catalysts underway to propel the company forward. While the term “quality” is common in the investment management industry, we would like to explain how we think about quality and why we invest a tremendous amount of effort attempting to assess quality.
We believe identifying quality businesses is a combination of art and science. Quality does not lend itself to a formula. Both quantitative and qualitative “brushes” are required. That is part of the beauty of our process – it is not formulaic, but rather a mosaic.
Many investors seek quality by “screening” for financial figures they believe to be “proof ” of a high-quality company. While we, too, scrutinize financial data, we do not utilize screens. We believe quantitative screens to be exclusionary, at best, and think they often funnel investors into the same stocks, leading to herd behavior. Instead, our new ideas are “screened in” based on the knowledge and expertise the team garners by spending the vast majority its time studying our existing holdings and their value chains (e.g., competitors, suppliers, customers and disruptors).
To read the full thought piece, please use the link below.