In my travels in this business, I’ve done a lot of meetings. And in those meetings, often times words or terms get thrown out into the conversation and everyone nods their head as if we’re all in agreement about what that word or term means.
I think we’re using some of these words kind of haphazardly in conversation and we don't have an agreement on what we’re talking about necessarily.
And the word is quality. And people will say in a meeting, “were buying quality businesses” or “quality rallied and junk wasn’t working” or “quality was lagging and junk-oriented businesses really were working best” or whatever the context may be. Whenever the word comes up, we all just nod our heads and move on as if we’re saying the same thing, so let’s just set the record straight and give the definition for quality here at Heartland.
Everything we do is couched in the 10 Principles, our 10-point analysis of a stock in determining whether or not it's an appropriate holding for us. As it relates to quality, we’d be looking for a capable management team. One that has a track record of success and being shareholder friendly and doing what they say they are going to do. Two would be they have a sound business strategy, meaning we believe in the approach that they're going to take. They have shown in the past using this approach will be successful for shareholders and they’ve created a defensible position for their business in the marketplace. On the science side, you'll see it in our free cash flow. We would like to see a business with consistent free cash flow. And finally, financial soundness. We want to see a rock-solid balance sheet, and you put these factors together and, in our view, you have a quality business.