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Quality over quantity: A framework for long-term value investing

  • Communications
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  • Mar 31, 2017
Quality over quantity: A framework for long-term value investing

When investing, it is critical to have a grounded and sound intellectual framework to be successful.

On March 16, Paul J. Lountzis, president and founder of Lountzis Asset Management, LLC, a Pennsylvania-based investment advisor firm, spoke with Professor George Athanassakos’ value investing class about the company’s investment framework.

Inspired by Warren Buffett from the age of 13, Lountzis considers five investing principles when evaluating risk of investing in any public or private company:

  • The long-term characteristics of a business- Lountzis’ firm begins by evaluating a company based on its long-term prospects. If his team doesn’t have a reasonable idea of where a client’s company will be in three to five years, they are not interested in investing.
  • Evaluating management as operators or capital allocators- Lountzis said that in many cases there are few CEOs and presidents who are both good operators and capital allocators. When investing, you want to have good operators, and someone who knows what to do with free cash flows. How a manager allocates free cash flows dictates a lot about the future success of a company.
  • Determining if management is shareholder oriented- You can learn a lot about management from reading the proxy statement. To judge character, Lountzis looks at the ways in which managers are compensated and whether they are sharing rewards with stakeholders or pocketing rewards themselves.
  • The valuation of a business- Before investing, Lountzis assesses a company’s sustainability over time, the value it is selling for on the market, and the value of a company in the community it serves.
  • The levels of taxation and inflation- Properly assessing the taxation and inflation numbers is essential to make an informed investing decision. In Lountzis’ experience, the most successful investments were the ones in which he could see the past, present, and future prospects with clarity.

In short, Lountzis’ firm does extensive preliminary research before investing in a company. This ensures favourable long-term prospects, proper risk tolerance in clients, and honest management.

Instead of solely focusing on the quantitative aspects of a company, he encouraged the students to think more broadly than investing. Drawing from his own personal experience with clients, Lountzis stressed the importance of qualitative research as well.

“The reality is that the quality of your life is dictated by the quality of your relationships. The relations with your clients and colleagues are crucial because life is really short, and life is precious,” said Lountzis. “Even more important than investing are the relationships you build throughout your life. When you are happy personally it enables you to have a foundation to have a happy life professionally.”

Lastly, he told students, to be successful, they need to have the right clients, the right temperament, and pursue knowledge every day.

“People who are really successful have a unique temperament, a focused commitment, and a never-give-up attitude. You have to dive in full tilt and give it everything you have,” said Lountzis.