The Advantages Of A ‘Terrific Business Run By A Terrific Management’
Why quality of businesses and managements is crucial to investing.
The power of quality was the theme for this week’s episode of BloombergQuint’s special series How To Invest With Raamdeo Agrawal. “When a terrific business is run by terrific management, you get a terrific stock,” chairman of the Motilal Oswal Asset Management Company Ltd. told BloombergQuint's Niraj Shah.
In his books, quality refers to the quality of both businesses and managements, Agrawal said. He cited the example of India’s information technology boom where a plethora of companies were incorporated but only a few survived. “The IT business back then was good but there was a question on managements,” the veteran investor said.
Cyclical businesses may earn 70-80 percent during an upturn but returns can slide to 10-15 percent during bad times, he said. On the other hand, an investor may pay a higher price for a secular, quality business but will be assured of growth in the long term, Agrawal added.
When asked about how to measure quality, Agrawal said it’s all about numbers, starting with return on equity and return on capital employed. It is important to note the debtor days, which according to the veteran investor should be less than 30-days.
Watch the full interview here.
This series will have a fourth part which will concentrate on “price” aspect of investment to be featured next week.