Welcome to Quality Share Surfer.
This is a UK focused investing blog, where I regularly set out my thoughts on investing strategy, economics and behavioural finance and chronicle the decisions I make for my own portfolio. My goal is to bring clarity to complex ideas and provide original insight you won’t find elsewhere.
My investing style is ‘behavioural’ in that it aims to take advantage of systematic errors made by other investors. Part of the idea is that these errors lead shares with certain attributes, e.g. value, quality and momentum, to tend to outperform the market. My strategy is focused primarily on exploiting two such attributes in combination: a) the tendency for high quality businesses to outperform over time and b) the tendency of shares with momentum to continue to do well. You can find out more about my strategy following the menu above.
Here are examples of some of my most popular posts.
- Invest in the best (no compromise)
- About time
- Impulse control
- Ignorance is bliss
- Identifying quality
- Do acquisitions really destroy value?
I hope you find the blog useful. Please leave comments if you find this interesting or would like to ask questions or discuss related topics.
Quality Share Surfer
Quality Share Surfer 
Hi there – great blog – good work. I liked your look at M&A and your reference to the base case. Since you have a quality bias, are there empirical studies that shows the quality factor outperforming? I recently read Quantitative Value by Tobias Carlsile and he argues the quality factor detracts from the performance of the “Magic Formula”. I also think that o’shaughnessy work in “What Works on Wall Street” shows that the highest quality companies from a ROCE perspective dont have the best performance. Have you seen data that counters this? Thanks for your input.
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Hi Michael
Thanks for the kind feedback and also for being the first to leave a comment on the welcome page with an excellent question.
As far as I am aware, the empirical evidence around the ‘quality factor’ is well captured by the books you refer to i.e. there isn’t much evidence that metrics like ROCE predict outperformance on average on their own. To my mind this is because a measure of historic profitability like ROCE is only the tip of the iceberg of what captures quality. I think the most useful definition of quality conceptually is ‘certainty of future long term growth in cash profits’. Historic profitability is one aspect that can help predict this but I think the more important aspects are more qualitative than readily measurable: things like whether the business has a sustainable competitive advantage and the long term growth prospects of the relevant market. To me these factors logically seem more important in determining how shares should be valued than many of the other more short-term or historic factors investors tend to rely on more heavily.
I think this creates opportunity:
a) because quality is hard to measure it is relatively neglected. This means the highest quality businesses are generally likely to be materially undervalued (the challenge is to identify them in advance of course)
b) this relative lack of attention means quality will not be arbitraged away easily. Focusing on quality is a strategy that should continue to work over time
c) the relative lack of attention makes me more confident my own judgment of quality will add value
This thesis is based on intuition from many indirect inferences rather than direct evidence. Nonetheless I find the intuition highly compelling. Fundamentally it’s about having a more forward-looking long term perspective than other investors…
I’ve said much more about this topic in various other posts e.g. ‘the rationale for my approach’; ‘identifying quality’; ‘fat tails’; ‘a question of perspective’ to name a few…
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