Quality investing strategies are simple to execute in the complex world of investing.

When focusing on quality, fund managers keep their eye on the top prize by setting out to purchase financially fit companies with strong earnings and stable balance sheets. This means a solid track record of capital efficiency.

Definitions of what it takes to make a quality company varies, though they are largely associated with competitiveness, efficiency, financial stability and a healthy return on equity.

Quality investing is a longstanding strategy in the investment world that has never gone out of style. In fact, investing in quality companies is an approach that can be traced right back to economist and mentor to Warren Buffet, Benjamin Graham.

In the investment world, constructing a quality portfolio means comparing quality characteristics of a company relative to its peers in the same sector. There may also be a need to implement a constraint on sectors that have an element of risk, perhaps due to economic constraints.

Financially sound companies with a long history of solid earnings can be hard to come by. Most companies run into financial trouble at some point, but investors focused on quality investing give them a wide berth.

That’s according to the founder of Sydney’s Arch Capital, Nigel Baker, who says that investing relies on process and discipline.

While its critical to use managers that have a thoroughly researched and disciplined approach to ensure they carefully select companies they invest in, quality investing also comes down to excluding companies that don’t suit their remit, Baker says.

“Not all companies are profitable, which may defy logic given that’s the key of going into business,” Baker tells Professional Planner.