Some investors investment preference can sometimes be classifies as quality investing. This is a sort of hybrid approach in which the investor is searching not for questionable companies at bargain prices or exceptional companies at outrageous prices, but good companies at good price. This strategy relies on a combination of quantitative and qualitative factors which we will discuses in another edition of our series. Quality investors rely on a fairly simple investment strategy that can benefit any investor interested in identifying good values. They look for great stocks, then buy them and hold them for several years or more. The trick here is to look at your investment as if you were buying a piece of a business, not just shares of its stock. In this sense, the management of the underlying company is an important criterion in the investment decision. In this regard, the value of the business is determined by totaling the net cash flows you expects to occur over the life of the company and discounting them by the appropriate interest rate. You may add a premium based on the risk involved in the particular investment. The focus here will be on return on equality, operating margins, debt levels and capital expenditures to identify the best investments. Quality investors believe that diversification is less necessary for those able to confident will signifying a few good values is far more important than spreading invested money across a typical diverse portfolio.
