Heartland Advisors

Quality at Heartland


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Michael Warecki

Research Analyst


Have you ever heard the term, “you get what you pay for.”? Generally, there’s some truth to that statement. For example, if I were shopping for a new jacket, I may be willing to pay a premium price if I perceived that item as high quality. 

Many times, when paying a premium, get what you pay for, but other times you may come away unsatisfied with the purchase, realizing later that you overpaid. Like consumers, investors can overpay for quality. 

When it comes to defining quality, investors often define it from a factor perspective, where it represents a combination of returns on capital, leverage, and earnings variability. 

At Heartland, we use our 10 Principles of Value Investing™ to assess quality from a quantitative and qualitative perspective. 

From the quantitative side, we define quality value as generating free cash flow returns on capital in excess of a company’s cost of equity. 
Essentially, this captures companies that consistently generate accretive returns on capital. We also assess other quantitative quality measures such as financial soundness and earnings dynamics.

From the qualitative side, we meet directly with management teams to understand their business strategy, capital allocation priorities, and how executives are compensated, which can impact shareholder friendly behavior and durability of quality measures. 

At Heartland, we use our time-tested 10 Principles of Value Investing™ to guide our process of investing, so we can strive to make confident decisions when it comes to assessing the quality of a business.


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Past performance does not guarantee future results.

The statements and opinions expressed in the articles or appearances are those of the presenter. Any discussion of investments and investment strategies represents the presenters' views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

Heartland’s investing glossary provides definitions for several terms used on this page.

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