Elements of Quality Value Investing | Part One of a Series
The best of the QVI newsletter series on how the quality-driven value investing strategy can succeed for those aiming to outperform their market benchmark
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In the first part of a series, we’ll review the principles, strategies, and practices of Quality Value Investing (QVI) that make up the market-beating checklist of metrics used to select primary tickers for the alpha-producing QVI Real-Time Stock Picks.
The QVI newsletter narrative posts teach the essential elements and reliable indicators for identifying quality companies whose stocks are temporarily trading at reasonable prices.
By focusing on a company’s current wealth and a stock price’s present value, QVI’s 42 active picks have collectively outperformed the S&P 500 index by 10,462 basis points (bps) or 104.62 percentage points, based on the average per holding since 2010, using an equal-weighted approach.*
When combined with QVI’s 20 former picks, still tracked for paying subscribers as “Good Ideas at the Time” for transparency, the total of 62 picks has outperformed the S&P 500 benchmark by 2,674 basis points, or 26.74 percentage points, based on the average per holding since 2008 using the same equal-weighted allocation.*
Here’s how we did it in a nutshell.
Refer to the Resources section at the end of the post for links to QVI’s Glossary of Investing Terms, research reports, and real-time stock picks.
*Source: Quality Value Investing via Google Finance. Combined stock picks’ performance data as of the market close on July 7, 2025. Past performance is not indicative of future results. Please read the important disclosures at the end of this post.
QVI Research Checklist
Founding and premium subscribers receive direct access to QVI’s alpha-achieving checklist of the metrics used for selecting primary tickers for the market-beating QVI Stock Picks Real-Time Performance Tracker.
Below is the research checklist of essential elements and reliable barometers for identifying quality companies whose stocks are currently trading at reasonable prices.
Company Current Wealth
Value Proposition
Review the Form 10-K annual report and investor relations webpage.
Define the company’s profile.
Are the competitive advantages of the products or services understandable?
Assign an economic moat rating to the enterprise (Morningstar is the moat leader).
Write a value proposition elevator pitch about the company.
Returns on Management
Five-year revenue growth should be positive.
The net profit margin must be positive and preferably double-digit.
Return on equity of 15% or higher.
Is the company buying back its stock, and if so, at a reasonable price?
Return on invested capital (ROIC) of 12% or higher.
Does the ROIC exceed the business’s weighted average cost of capital or WACC?
Do the owners’ earnings provide excellent returns? (EPS + dividend growth)
Enterprise Downside Risks
The current assets to long-term debt coverage ratio should be 1.5 times or higher.
The long-term debt-to-equity ratio should be below 100%.
The short-term debt coverage, or current ratio, should be greater than 1.0 times.
Stock Price Present Value
Shareholder Yields
The earnings yield should be 6% or higher — the inverse of a <17 times PE.
The free cash flow yield should be 7% or higher — the inverse of a <15 times FCFY.
Does the company pay a dividend? If so, look for a payout ratio under 60%.
What is the yield-on-cost of the stock if purchased at least ten years ago?
The average of the above three yields equals the equity bond rate.
Is the equity bond rate higher than the prevailing Ten-Year Treasury yield?
Valuation Multiples
The price-to-sales ratio should be under 2 times or below its industry average.
The price-to-earnings ratio should be under 17 times or below its industry average.
The price-to-operating cash flow ratio should be in the single digits.
The enterprise value-to-operating earnings ratio should be below 15 times.
Weigh the multiples to determine if the stock is either underbought or oversold.
Share Price Downside Risks
Measure stock price volatility for a beta at or below the market standard of 1.00.
Determine if the short interest as a percentage of the float is <5%.
What is the historical performance of the stock versus the broader market?
Investment Thesis and Catalysts
Write a narrative of the company’s current wealth and the stock’s present value.
Make an investment call of bullish, neutral, or bearish.
Uncover potential events that would confirm or contradict the investment thesis.
The Quality Value Investing Model
A profitable retail common stock portfolio resembles a collection of owned slices of well-managed companies that produce in-demand, high-quality products or services with enduring competitive advantages.
Here’s how to boost your chances of achieving alpha by investing in great companies over long periods instead of the shortsightedness of trading in and out of faceless stocks.
QVI’s Suggested Portfolio Objective
Buy and hold the common shares of U.S. exchange-traded, predominantly dividend-paying, well-managed, financially sound businesses that produce easy-to-understand products or services, have enduring competitive advantages through economic moats, enjoy steady free cash flow, and are trading at a discount to their perceived intrinsic value at the time of purchase. Then, of utmost importance and perhaps the biggest challenge, practice patience in waiting for the investment thesis to play out as projected over a long-term horizon.
Screen for Quality, Enduring Companies
Wall Street lives and dies by its quarterly earnings releases and unreliable predictive analyses.
Instead, screen and research quality businesses for mispriced value. High-quality companies offer the best opportunities to outperform the market.
Beat the market on the downside, and let the upside take care of itself.
Buy Shares When Available at a Discount
An attractive stock price becomes a non-negotiable prerequisite to initiating the productive partial ownership of excellent businesses.
Holding a concentrated basket of the common shares of high-quality companies has an increased potential to produce superior returns.
Practice discipline and patience to regularly sift for value, as the occasional surprise bargain appears when least expected.
Consider Equal Weighting a Portfolio’s Holdings
By equal-weighting a portfolio, each component is treated equally, regardless of its price, market capitalization, or investor sentiment.
There is no need to be overweight or underweight by speculating on what holdings will outperform or underperform the targeted benchmark.
Ultimately, equal weighting a portfolio increases the likelihood of outperformance by limiting conscious and subconscious bias.
Hold for the Long Term, Including Forever
“Buy low, hold high, and sell when you die.” —David J. Waldon
Buying and holding the common stocks of quality companies at sensible prices remains the most straightforward path to success.
When buying enduring companies at reasonable prices, there are fewer incentives to sell other than to take profits on a long-held common stock, donate the proceeds to charity, or bequeath the shares to the family for the benefit of future generations.
>50% Will Likely Outperform Over Time
Uncomplicated, focused research has more potential to outperform the market over an extended holding period.
By following Quality Value Investing’s principles and strategies, more than 50% of the holdings in the QVI Stock Picks have outperformed or matched the broader market since 2009. As of the market close on July 7, 2025, the publication date of this post on Substack, this alpha-achieving outcome has persisted for over 15 years.
The seven stocks in QVI’s concentrated holdings, also part of our family portfolio, have outperformed the S&P 500 by 43,898 basis points, or 438.98 percentage points, on an average per holding, equal-weighted basis, since their inception in the QVI Stock Picks.*
A concentrated portfolio of select “quality at value” compounders is the best opportunity for success in long-term, do-it-yourself common stock investing.
Remember, it’s not how many stocks in a basket outperform the market but how they perform collectively overall.
*Source: Quality Value Investing via Google Finance. Combined stock picks’ performance data as of the market close on July 7, 2025. Past performance is not indicative of future results. Please read the important disclosures at the end of this post.
Resources
QVI’s Research Reports Archive and Stock Picks Real-Time Performance Tracker offer the most recent analysis and performance of the 42 active QVI Stock Picks, including the application 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 achieve 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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