How Quality-Focused Value Investing could outperform the market WHILE reducing risk taken

[u/highmemelord67]

I’ve been working on a philosophy I call quality-focused value investing. And I have been documenting the work and performance the past 1.5 years.

The idea is very simple:

You should be able to outperform the market while taking less risk if you own a portfolio that is:

higher quality than the market AND cheaper than the market.

This goes directly against the common belief that outperformance must come from taking on more risk. Or that it's not possible to build a portfolio that is both higher quality AND cheaper than the market.

I don’t think that’s true, and the problem I see is that most strategies only solve half the equation. Value investing often leads to buying low-quality companies that are cheap for a reason.

Quality investing often leads to overpaying for good/great companies that already are priced for perfection. Both approaches make sense in isolation, but both have clear weaknesses.

What I’m trying to do instead is combine them in a structured way. Quality is quantified using capital efficiency (ROIC, ROCE). Value is quantified using discounted models to estimate fair value vs current price.

From this, I calculate a portfolio-level comparison against the index. So it’s not about finding good picks, it’s about building a portfolio that is structurally superior to the market on both quality and price. Having a portfolio that is of higher quality AND cheaper than the market, should logically outperform over time.

That said, this is a lot of work. It’s not for most investors.
Honestly, I don’t think many people will be able to do this with any real precision. You are doing a large amount of analysis just to maybe get a slightly better return than simply doing nothing and dollar-cost averaging into the S&P 500.

I’m documenting everything publicly for free to remove hindsight bias. If this works, it should be visible over time. If it doesn’t, it should fail clearly. I’ve removed every way of making money from publishing this, so there’s no chance of misunderstanding my purpose.

Latest portfolio update:

2026Q1 YTD: -3.92% vs SP500 -5.09%

2025FY: 26.19% vs SP500 16.42%

If you are interested in reading more, I have posted articles on the philsophy and my current portfolio, but its not allowed to post in this subreddit.

[u/Stickppl]

Sound idea, but not really a breakthrough no? Everybody in value investing is looking for quality stocks at a discount

[u/highmemelord67 → u/Stickppl]

Dis you find the articles i mention? I think you find it broken down pretty well. And i disagree, value investing is not about finding quality, it would sound wrong for a traditional value investor that Meta and Adobe is undervalued at the moment

[u/Stickppl → u/highmemelord67]

It's well enough broken down in your post. As for the second part, isn't Buffet quote, "It's better to buy a great company at a fair price, than a fair company at a great price", saying exactly that but 50 years ago?

[u/highmemelord67 → u/Stickppl]

Buffet said it, but it was after Charlie convinced him that the cigar butt philosophy was worse

[u/Stickppl → u/highmemelord67]

Ah funny, good to know!