The Importance Of Quality Investing

Given the euphoria that has characterized the stock market over the past ten years; we observe that many investors tend to lose sight of the importance of owning high-quality securities.

The purpose in owning high-quality securities is comparable to the purpose in carrying fire insurance on our house.

We carry fire insurance, not because we expect our house to burn down, but because the consequences are so dire if it does burn down and we do not have the insurance.

Similarly, though we may not expect a catastrophic economy or calamitous stock market, if we do have one, we are surely better off in high-quality securities than low quality ones.

In the later stages of a bull market there is a strong propensity among investors to own increasingly speculative securities or to own mutual funds made up of more speculative securities. These are the investors usually most damaged in a bear market or a stock market crash.

We do not classify a common stock as high quality unless it carries a Standard & Poor's rating of A-, A, or A+.