Quality investing is an investment approach that emphasizes buying stocks of businesses that are financially stable or profitable when examined on one or multiple metrics.
What is quality investing?
Quality investing can be defined in many different ways. Some investors might examine gross margin, or the percent of revenue remaining after core product costs. Others might use return on equity, or a stock investor’s gain.
High-quality stocks tend to have steady returns and a limited degree of earnings variability, so they often hold up well during broad market sell-offs. The other common thread is financial strength: Quality firms tend to have squeaky-clean balance sheets.