In investing, as in life, quality never goes out of style Recent examples highlight how compromised quality can lead to financial setbacks for companies and investors alike. Quality-focused indices demonstrate better risk-adjusted returns, making them attractive amid global uncertainties
In our day-to-day life, quality is a non-negotiable expectation. We choose a well-reputed doctor over a random clinic, a sturdy car over a flashy one, and trusted brands over unknown names when buying products for our children. These choices come naturally because they offer us peace of mind, reliability, and long-term satisfaction.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} And yet, when it comes to investing, many people tend to ignore the same principles. Instead of focusing on companies that are built on solid foundations, they chase trends, follow hype, or simply go for what’s popular. But here's the truth: just as in real life, quality is the backbone of lasting success in investing.
The cost of ignoring quality
Let’s look at some real-world examples. A chocolate company once faced backlash when consumers found worms in its products. A popular smartphone brand had to recall millions of devices due to battery explosions. An airline manufacturer suffered reputational and financial damage when two of its planes crashed due to software and training lapses.
In each case, the underlying issue was compromised quality. The result? Consumer distrust, plummeting sales, and massive costs to repair brand image. For investors in those companies, these events translated into falling stock prices and wealth erosion. Quality failures are not just operational issues; they are financial time bombs.
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What defines a quality business?Quality investing is about identifying companies that stand the test of time. These companies typically have:
Strong financials: high Return on Equity (ROE), robust free cash flows, low or manageable debtConsistent earnings: predictable growth across business cyclesCompetitive advantages: unique products, brand equity, or distribution strengthSensible capital allocation: management that reinvests profits wiselyGood governance: transparency and shareholder alignment
Quality companies rarely need to cut corners. They don't chase short-term profits at the cost of long-term health. That’s what makes them dependable investments.
Quality investing: The long-term payoff
What makes quality companies even more attractive is their performance over time. They may not always lead the charts in a bull run, but they often fall less in market downturns and recover faster. Their steady compounding can create significant wealth with lower risk.
Historical data support this. Quality-focused indices, such as the Nifty 200 Quality 30, have delivered better risk-adjusted returns over the long term compared to broader market indices. They provide a smoother ride for investors who prefer consistency over drama.
Investors returning to resilient businesses?
Markets go through phases. At times, quality underperforms as investors chase momentum or speculative themes. However, these phases often end with a return to fundamentals. With rising global uncertainty, inflationary pressures, and earnings slowdowns, investors are again turning to businesses that can survive turbulence.
Currently, many high-quality companies are trading at reasonable valuations after a few years of underperformance. This presents an attractive entry point for long-term investors.
Quality is a habit, not a trend
Similar to how we choose quality in our personal lives, our portfolios should reflect the same thinking. A high-quality company purchased at a fair price is often far better than a cheap stock with questionable fundamentals.
As Warren Buffett famously said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Taking the mutual fund route
Not all investors can analyse individual companies, making mutual funds a smart choice. Quality-themed funds use research to select financially sound, sustainable businesses with strong moats at reasonable valuations.
This article is contributed by Sonu verma(Founder, Certified Financial Goal Planner at Credence Fintech MFD)
Note: Investment returns mentioned are for illustration purposes and not guaranteed. Please consult a financial advisor for personalized advice.
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This story originally appeared on: India Times - Author:Faqs of Insurances
