Lawrence A. Cunningham > Quotes

“What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know.”
― Lawrence A. Cunningham, The Essays of Warren Buffett: Lessons for Corporate America

“Common sense is the heart of investing and business management.”
― Lawrence A. Cunningham, How to Think Like Benjamin Graham and Invest Like Warren Buffett

“What, then, is Berkshire’s moat? The answer: Berkshire’s distinctive corporate culture. Berkshire spent the last five decades acquiring a group of wholly owned subsidiaries of bewildering variety but united by a set of distinctive core values. The result is a corporate culture unlike any other. And this is Berkshire’s moat.”
― Lawrence A. Cunningham, Berkshire Beyond Buffett: The Enduring Value of Values

“Culture, more than rule books, determines how an organization behaves.”
― Lawrence A. Cunningham, The Essays of Warren Buffett: Lessons for Corporate America

“If the widget company consistently earned a superior return on capital throughout the period, or if capital employed only doubled during the CEO’s reign, the praise for him may be well deserved. But if return on capital was lackluster and capital employed increased in pace with earnings, applause should be withheld. A savings account in which interest was reinvested would achieve the same year-by-year increase in earnings—and, at only 8% interest, would quadruple its annual earnings in 18 years. The power of this simple math is often ignored by companies to the detriment of their shareholders. Many corporate compensation plans reward managers handsomely for earnings increases produced solely, or in large part, by retained earnings—i.e., earnings withheld from owners. For example, ten-year, fixed-price stock options are granted routinely, often by companies whose dividends are only a small percentage of earnings. An example will illustrate the inequities possible under such circumstances. Let’s suppose that you had a $100,000 savings account earning 8% interest and “managed” by a trustee who could decide each year what portion of the interest you were to be paid in cash. Interest not paid out would be “retained earnings” added to the savings account to compound. And let’s suppose that your trustee, in his superior wisdom, set the “pay-out ratio” at one-quarter of the annual earnings.”
― Lawrence A. Cunningham, The Essays of Warren Buffett: Lessons for Corporate America

“David Ogilvy: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But, if each of us hires people who are bigger than we are, we shall become a company of giants.”
― Lawrence A. Cunningham, The Essays of Warren Buffett: Lessons for Corporate America

“best businesses to own are those in which end markets are growing rather than shrinking. Absent”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“financial statements classify advertising costs as expenses, they are often better conceived of as investments. This reclassification makes sense because advertising is also a far more flexible expenditure than most costs. Amid challenging economic times, advertising can be scaled back relatively quickly, adding agility to protect and manage cash flows. However,”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“much diversification is really diworsification.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“sustained high gross profit margins relative to industry peers tends to indicate durable competitive advantage. Zeroing”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Asset-light industries are attractive since they require less capital to be deployed in order to generate sales growth. The finest examples are franchise operations, such as Domino’s Pizza, where growth is funded by franchisees rather than by the company. Other”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“The profound point is that the critical link between growth and value creation is the return on incremental capital. Since share prices tend to follow earnings over the long term, the more capital that can be deployed at high rates of return to drive greater earnings growth, the more valuable a company becomes. Warren Buffett summarized the point best: “Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”4 The best investments, in other words, combine strong growth with high returns on capital.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Valuation premiums of quality companies often reflect some degree of expected operational outperformance, but actual performance tends to exceed expectations over time. Stock prices thus tend to undervalue quality companies.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Gross profit margin demonstrates competitive advantage: it is the purest expression of customer valuation of a product, clearly implying the premium buyers assign to a seller for having fashioned raw materials into a finished item and branding it.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“The value any business creates, listed or not, is determined by the rate at which it deploys incremental capital. And”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“we are confident that the fundamental principle of long-term ownership of quality companies is a sensible one, new”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Opportunities for growth maximize the benefits derived from high returns on capital. Such opportunities can arise from market growth, either cyclical or structural, or through a firm grabbing share from rivals in existing markets or expanding geographically. The very best companies enjoy a diversified set of growth drivers through ingenuity in the design of products, pricing, and product mix.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“companies that tie up very little extra working capital with incremental sales tend to be more attractive.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Quality investing focuses on a company’s ability to invest capital at high rates of return: post-tax levels of high-teens (and higher) are possible. Three elements drive corporate cash return on investment: asset turns, profit margins and cash conversion. Asset turns measure how efficiently a company generates sales from additional assets, which can vary greatly depending on the asset intensity of the industry itself; margins reflect the benefits of those incremental sales; and cash conversion reflects a company’s working capital intensity and the conservatism of its accounting policies.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“high capital intensity companies can also be attractive, especially where the capital requirement confers stability and deters entrants.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“Given the specialized niche and deal size, there is scant competition in this acquisition market, enabling Essilor to purchase companies on attractive terms (such as six to seven times cash flow). This ability to systematically improve the operations of acquired businesses is rare but can create significant value.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term

“To achieve sustained high returns on capital requires possessing features that protect returns from competition; namely, competitive advantages. Identifying what these competitive advantages are and understanding their sustainability is an essential part of the quality investment process.”
― Lawrence A. Cunningham, Quality Investing: Owning the Best Companies for the Long Term