Quality Growth Management, Inc. seeks investments that have a high probability of delivering exceptional growth over a five to ten year period. In equity investments we eschew short-term speculation and utilize our core practice of rigorous, bottom-up analysis to identify specific equities which we expect to deliver steady, compounded growth over the long-term. In fixed income investments we seek stable performance by emphasizing credit quality and avoiding junk bonds.
The supreme objective of our equity holdings is the ownership of proprietary business franchises in growing industries: those few companies which enjoy the compounded-growth of growing their share of markets which are growing simultaneously. Historically, such companies have:
- Dominant product positions and “top-of-mind” brand awareness.
- A track record of consistent growth.
- Management that has demonstrated innovation, leadership, and a strong sense of its fiduciary responsibility to shareholders.
- Substantial excess cash generation, after maintenance capital expenditures.
- Higher returns on reinvested capital than the cost of that capital.
- Scalability, wherein growth of the business drives leveraged profit increases.
Relatively few companies with these characteristics exist; accordingly, we do not over-diversify our portfolios. Historically, important core holdings in our portfolios have had a track-record of combining top-of-mind brand awareness and international exposure with management excellence, and thus are largely considered to be amongst the best companies in the world. They are companies which have proven their reliability by outliving trends and enduring turbulent economic cycles, companies wherein there is little doubt they will continue their legacy of offerings which possess special value to their customers.
Owning great companies for a long time, without unnecessary exposure to fees and taxation of gains, grows wealth; and the continuity of our holdings is therefore an important component of reliable growth. When the market becomes inhospitable, in-depth personal understanding and familiarity with the companies we own helps us to hold on.
A perfect example of a franchise builder for which the market was inhospitable is Qualcomm. Purchasing shares of this Qualcomm shortly after it went public, some two decades ago and holding for the long-term would be a perfect example of Quality Growth Management, Inc.’s reliable growth philosophy in action.
Years of disparaging press reports about Qualcomm’s CDMA technology had scared most investors away. This created a bargain opportunity for investors who did their own homework and had the courage of their convictions. In-depth research, going so far as to include reading court briefs and attending hearings during patent litigation would have lead a diligent investor to the opinion that Qualcomm would someday prove to have undisputed ownership of proprietary technology with worldwide applications. While diligent investors would not have been surprised when the litigation was settled in Qualcomm’s favor, the market was, and the market subsequently ran the stock price up 1500% in less than a year! Qualcomm, once looked upon as an ugly duckling, became recognized as a rare prize, firmly establishing itself as one of few companies with undisputed ownership of ‘New Economy’ technology.
