Thread on quality vs. value investing.

A criticism I hear about quality-focused investing is it's undifferentiated--what value does a quality-focused investor add buying $ODFL or $AMZN vs. a value investor finding a so-so biz with complex cap structure trading at 10x P/E? 1/6

My response is: 1) quality-focused investing has worked over decades. Obviously buying a great business at a lower px is preferable to paying a higher px, but ROIC outweighs value over any extended period of time. As always, Munger says it best: 2/6

2) If value investing is so unique, why are there so many value investors and so few quality-focused investors? First Pacific, D&C, Weitz, Brandes, Yacktman, Greenlight, Baupost, Hotchkiss & Wiley, Primecap, etc, etc, etc. Endless number of value shops. 3/6

Meanwhile, I can name only 5-6 quality-focused shops with scale: Akre, Polen, Brown, AKO, Fundsmith, Lone Pine. Places like Ruane Cunniff try replicating the strategy but don’t really stick to it (huge owners of $VRX for years, recently sold $AMZN because stock was up, etc.) 4/6

Reality is quality-focused strategies are hard to market. You sound silly walking into meeting with endowment saying you focus on ROIC. Meanwhile value/distressed mgr says he has team of industry experts who know some esoteric sector and can hire BCG/legal team for diligence. 5/6

My view is complexity is mostly a distraction. If you find a small group of great companies at decent prices and own them for 5+ years, you’ll outperform. Meanwhile value guy picking up dollars for 50c has to constantly turn things over and pray his companies don’t implode. 6/6