Morningstar Inc’s head of equity research, Heather Brilliant, explains to Morningstar Australasia’s Nicole Manktelow the difference between quantitative and qualitative research, and how our 100 equity analysts go about valuing the 2,000 companies they cover.
Brilliant outlines our three different 'buckets' for assessing a company's competitive advantage, using the idea of a business as a castle and its moat as the economic advantage that protects it. A company with a wide economic moat has a very strong competitive advantage, which we think will last for 20 years or more; a company with a narrow economic moat has a competitive advantage that should last for around 15 years; and a company with no economic moat may have an advantage but we don’t expect it to persist in the long run.
Brilliant also highlights the key metrics to look at when valuing a company and explains our analysts' focus on returns on capital--you want to look for businesses that have returns on capital in excess of their costs of capital over a long time period. It's also important, she says, to take your own perspective into consideration when looking at equity analysis--only you know your financial goals and the type of portfolio you're holding.
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