Sticking to our principles: quality is the new opportunity
13 OCT, 2026
Investing is rarely smooth or linear. Market cycles come and go, tempting investors to chase themes or abandon long-held convictions. With all eyes having been on the AI trade, many fundamentally strong quality businesses have been overlooked and left undervalued. It is easy to forget that quality investing has outperformed global markets for decades, delivering more than 2.5 times the broad market return over the past thirty years. That is why, for quality-focused long-term fund managers like us, patience and conviction are key. Discipline and sticking to time-tested fundamentals deliver long-term results, no matter how tempting it may be to change tack.
Today’s market backdrop simply reinforces the case for quality. Markets are priced for a degree of perfection that leaves little room for disappointment – the MSCI World index, for example, trades at valuations not seen since 2000. Meanwhile, some of the world’s greatest businesses have sold off significantly from their highs, not because their competitive positions have weakened, but because short-term sentiment has weighed on their valuations. Many companies trade at valuation levels that reflect temporary headwinds rather than a change in their structural earnings power. This gap between price and intrinsic value is the opportunity.
Investing in quality means selecting companies with competitive advantages. They generate high, stable returns on capital and compound them over time. These businesses have well-known brands, genuine competitive moats, strong balance sheets and experienced management teams that allocate capital effectively, prioritising higher-return opportunities over empire-building.
Quality companies typically have lower debt levels, strong cash flows and resilient business models that help protect them during adverse market conditions. Many have a global footprint that enables them to shift supply chains and adapt sourcing in ways smaller, less diversified competitors cannot. Quality companies not only survive geopolitical and economic disruption – they often exploit it, making acquisitions when weaker competitors are forced to retrench.
At J Stern & Co., quality is not a marketing label. It is a non-negotiable filter at the heart of our investment process. Every company must satisfy our quality criteria before we invest a single pound or dollar. As the saying goes, it is about time in the market, not market timing. Companies with structural advantages and financial resilience are better positioned to avoid permanent capital loss through adversity – and protect the compounding engine over the longer term.
Past tailwinds have become future headwinds. Real growth, robust pricing power amid an inflationary backdrop, and balance sheet strength are the prerequisites investors should heed. By shifting towards a concentrated, quality-driven approach, investors can navigate the dual threats of rising operating costs and currency debasement, ensuring their portfolios are built for the reality of a new economic era.
The challenges are real – and so is the opportunity. Quality is on sale. When the rotation comes, it will be fast and significant. We believe that moment is now.
