Elements of Quality Value Investing | Part Three of a Series
The best of the QVI newsletter series on how the quality-driven value investing strategy prevails for those seeking to outperform their market benchmark
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In this third installment of a series, we’ll delve into the principles, strategies, and practices that comprise the checklist of metrics used to select primary tickers for Quality Value Investing’s (QVI) alpha-generating Real-Time Stock Picks.
The QVI newsletter narrative posts teach the key elements and reliable indicators for identifying high-quality companies whose stocks are temporarily trading at fair or discounted prices.
By emphasizing research on a company’s current wealth and a stock price’s present value, QVI’s 42 picks have collectively outperformed the S&P 500 index by 10,238 basis points (bps) or 102.38 percentage points, based on the average per holding since inception, using an equal-weighted approach.1
The seven current holdings of the QVI Current Stock Picks in our family’s concentrated portfolio have collectively outperformed the market by 43,797 basis points or 437.97 percentage points, based on the average per holding since inception, using the same equal-weighted approach.
The goal of this post is to explore best practices for building, allocating, and tracking a self-managed portfolio of high-quality stocks bought at reasonable prices, as well as managing the portfolio’s costs.
Building a Self-Managed Portfolio
Combine the principles and strategies of quality-driven value investing by developing a template to screen common stocks for further research and inclusion in a long-term, self-managed portfolio that aims to generate alpha.
Here’s how to use the QVI Stock Picks template to build a self-managed portfolio or evaluate the quality and worth of common stock holdings and targeted companies already on or to be added to a watchlist.
Using the QVI Stock Picks as a Proxy
Aim for long-term growth of both principal and income.
When selecting components for the portfolio, the focus is on stocks of high-quality companies that appear undervalued by the market, given a favorable long-term outlook for total return compounding, protected by acceptable levels of downside risk.
Achieving a steady current income from regular dividends is essential for the overall return goal. Therefore, most companies in the portfolio pay consistent dividends with a moderate to conservative payout ratio of <60%.
Building a Portfolio that Generates Alpha
Research the company and craft a story for the impending investment thesis.
Disciplined investors conduct bottom-up analyses, focusing on identifying high-quality companies regardless of the specific industry or broader macroeconomic conditions of the economy, which are inherently unpredictable.
We have truly achieved alpha when our small caps grow into midcaps and our midcaps expand into large caps. Assuming equal allocation, if three or four out of five ideas are profitable, the winners compensate for or at least cover the losses from one or two weaker ideas.
Portfolio Allocation Strategies
The allocation strategies in a concentrated stock portfolio, or how we assign securities, dividend payouts, and investable cash within our basket, are as important as the asset allocation of stocks, bonds, real estate investment trusts, indexes, and money markets in more diversified portfolios.
Let’s review the application of proven strategies for managing portfolio allocation, including investable capital and dividends paid into the mispriced shares of high-quality companies.
Weighting Mechanisms for Capital Allocation
Remember that investing with a market-cap-weighted approach, which includes overweighting and underweighting individual holdings, can lead to speculation or simply following the crowd, as stocks with higher market capitalization are generally more popular.
By equal-weighting a portfolio, investors treat each component equally, regardless of its price, market capitalization, or market sentiment. I equal-weight our family portfolio, as represented in QVI’s seven concentrated stock picks, as the most promising way to measure overall performance against its benchmark.
How Value Investors Reinvest Dividends
Whether working on Wall Street or living on Main Street, rational, quality-driven value investors are often wary of automatic reinvestment programs.
Buying securities at preferred price points and ignoring market fluctuations is a better option. Therefore, they allow dividends and capital gains distributions to be received as cash and reinvest the available funds into shares of quality companies when prices are attractive.
Understanding Our Opportunity Cost
Disciplined individual investors never allocate capital to stocks — or any investments with the risk of losing all capital — that are needed to cover at least three to six months of non-discretionary household expenses necessary for daily living.
If I had a do-over regarding dollar contributions, I would allocate 10 to 20 percent of my income to the stock market each year, starting with my summer jobs in my youth and never missing a beat from then on.
Portfolio Performance is Paramount
Build a portfolio mainly composed of dividend-paying common shares of high-quality companies bought at reasonable prices, aiming to outperform the benchmark across market cycles or at least exceed our minimum expectations as patient and disciplined investors.
Although each principle, strategy, and practice discussed in the QVI newsletter posts and research reports is critical, the primary focus remains on preserving invested capital.
Tracking Portfolio Performance
Use a checklist to assess targeted stocks when researching potential purchases or to track current holdings for the likelihood of sustained long-term ownership.
In other words, use a programmable template of key financial indicators to assess the quality and value of your current common stock holdings or to perform due diligence on targeted companies and stocks already on — or to be added to — your watchlist.
Common Stock Portfolio Research Template
The primary purpose of the research template is to develop a thesis of opinion by analyzing publicly traded companies and their underlying stocks.
The research methods should encompass the value proposition, management returns, shareholder yields, valuation, and downside risks.
The template concludes with weighted opinions on the company and its stock, categorized as bullish, neutral, or bearish, along with risk ratings of high, above average, average, below average, or low.
Suggested Performance Templates
Microsoft Excel and Google Sheets are standard end-user software tools for creating portfolio performance trackers.
Template User Guide | Key Financial Indicators
Company profile
Stock ticker symbol and exchange
Value proposition
Returns on management performance
Enterprise downside risks
Shareholder yields or the equity bond rate
Valuation multiples
Share price downside risks
Historical total return performance
Market sentiment (catalysts or what the bulls and bears say)
Controlling Portfolio Costs
As a contrarian to the Wall Street way, Quality Value Investing advocates that the mantra of everyday stock investors on Main Street be the relentless pursuit of absolute returns on capital and dividends with minimal fees, commissions, and portfolio turnover.
A primary responsibility of retail-level investors is to run their portfolio as a small, home-based business, keeping investment costs as low as possible.
How to Minimize Portfolio Costs Effectively
The key to reducing portfolio costs is selecting affordable investment options, such as the stocks of high-quality businesses, low-cost exchange-traded index funds, and FDIC-insured (or similar) cash instruments for holding dry powder from contributions, capital gains, and dividends.
By managing portfolio costs effectively, we enhance the likelihood that our investments will outperform the market benchmark over time. Like any business, keep investment costs as low as possible to maximize contributions to the bottom line.
Four Hidden Threats to Cost Efficiency
Below are four often-overlooked risks to the cost-effectiveness of our portfolios, each involving more than just chasing lower fees or commissions.
401(k) Fees (or equivalent): Retirement consulting firms that manage 401(k) plans or similar nonprofit and pension plans typically charge approximately 0.50 percent of the plan's balance for administering the program.
Inflation: A significant threat to our investment portfolio is inflation, which has historically averaged about 3% annually.
Income Taxes: As of this writing, the US federal government taxes realized capital gains at 15 percent and treats dividends paid as ordinary income.
Subscriptions: Our financial newspapers, magazines, investment newsletters, and other online subscriptions also contribute to increased costs in the portfolio.
Limit Portfolio Turnover
Portfolio turnover measures the frequency with which investment managers, whether they are individuals or professionals, buy and sell assets.
Low-cost active portfolio managers control fees by limiting position churn or portfolio turnover.
The Risks and Rewards of Investing in Stocks
Quality-focused, long-term value investing aims to achieve total return by leveraging the power of compounding capital and dividends — market fluctuations notwithstanding — while managing the associated risks and controlling portfolio expenses.
Whether active or passive investors, it is essential to keep portfolio costs as low as possible to maximize returns. Whether investing in individual stocks, bonds, mutual funds, or exchange-traded funds, managing costs is as important as earning capital gains and collecting dividend payments.
Unlike the fluctuating capital gains and dividend payouts from company and market gyrations, portfolio expenses are within our control. Opportunities are always available to keep portfolio costs as low as possible.
Disciplined retail investors on Main Street manage their portfolios as if they are running a small, home-based business.
Resources
QVI’s Research Reports Archive and Stock Picks Real-Time Performance Tracker provide the latest analysis and performance data for the 42 active QVI Stock Picks, including the use of this post’s proprietary research checklist.
The real-time final draft manuscript of my upcoming fifth book, Quality Value Investing: How to Pick the Winning Stocks of Enduring Enterprises, is now available on my author's website, hosted on Substack.
Read or Listen to the Real-Time Manuscript
About the Writer
David J. Waldron is the contributing editor of Quality Value Investing and the author of the international-selling book Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor, as well as his upcoming fifth book, Quality Value Investing: How to Pick the Winning Stocks of Enduring Enterprises.
He is a private investor and a former expert advisor to hedge funds, mutual funds, private equity firms, and investment banks.
David’s mission is to inspire his readers to reach their financial goals and dreams. His work has been featured in Substack Finance, Substack Business, Seeking Alpha, MSN Money, TalkMarkets, ValueWalk, Yahoo Finance, QAV—Australia’s #1 Value Investing Podcast, Money Life with Chuck Jaffe, LifeBlood with George Grombacher, The Acquirer’s Multiple, Capital Employed, and on platforms like Amazon, Barnes & Noble, Apple Books, The BookLife Prize, and Publisher’s Weekly.
David enjoyed a 25-year career as an executive in postsecondary education services. He earned a Bachelor of Science in Business Studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University. Learn more at davidjwaldron.substack.com.
“Investing advice is fairly commonplace, but here the author shares his own unique investment wisdom that readers will not find elsewhere.” —Critic’s Report, The BookLife Prize (Publishers Weekly)
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Disclosure: As of this post, our family’s concentrated portfolio held beneficial long positions in the common shares of seven companies listed in the QVI Real-Time Stock Picks. I authored this report, sharing my opinions without any compensation beyond the paid subscriptions on Substack or the royalties from the sales of my published books. I have no business relationships with any of the companies represented in the QVI Stock Picks.
Additional Disclosure: David J Waldron’s Quality Value Investing newsletter posts are for informational purposes only. Data accuracy is not guaranteed. Narratives and analytics are impersonal and not tailored to individual needs or portfolio construction beyond the QVI Stock Picks, presented solely for educational purposes. David is a private investor and author, not an investment adviser. Readers should conduct independent research or due diligence and consider consulting a fee-only financial planner, a licensed discount broker, a flat-fee registered adviser, a certified public accountant, or a specialized attorney before making investment, tax, or estate planning decisions.
Disclaimer: Although Quality Value Investing takes a skeptical view of the financial services industry, commonly referred to in the media as Wall Street—a euphemism for professional or institutional investing globally—it does not imply nor express specific issues or negative references regarding any actual organizations or individuals working within the financial sector. Any perceived connection or offense to actual firms or individuals is coincidental and unintentional. In its general critique of the universal Wall Street business model, QVI avoids unproven conspiracy theories and offers a platform for commentary, critique, education, and parody. In this context, facts stand apart from any alternative perspectives. Therefore, the subjective thoughts shared by the author throughout the post are his opinions and should not be construed as factual.
Source: Quality Value Investing via Google Finance. Combined stock picks’ performance data as of the intraday market on July 16, 2025. Past performance is not indicative of future results. Please read the essential disclosures listed above.