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-*

FINANCE
INVE
S
TING
(ry,:q
\
a
UANTTTATTVE

CHAPTER
IO
Red
Flags
The
worst
sort
of
business is one
that grows rapidly,
requires significant capital to
engender the
growth,
and
then
earns
little
or no money.
Think
airlines. Here
a
duroble
competitive
advantage has
proven elusive
ever since the days of the
Wright
[b]rothers.
Indeed,
if
a
falsighted capitalist had
been present at
Kitty
Hawk,
he
would have
done
l'ris
successors
a
huge favor by shooting
Orville
down.
'
Warren Buffett,
2007
Annual
Report to Shareholders
So
far
in
this book, I've identi
tu
tureBtd-dffiiEike t returns
f
ro
uantitativ
all
these
orimarv dri-
vels the
ltnsics, since
they
represent
the
essentials of common stock investment.
Cha
,l tlrrou
lr
9,1
covered
many
of the basic
drivers
of
ftftui
market returns, including
ofitabili
and
A quantitative investo4 or
an
investor simply
seeking to become better
at
picking
stocks,
can
couttt
on these six
furrdamental drivers
to
provide
a
solid foundation
forbuilding
an
effective quantitative
scleen or
model
or
in qualitatively
choosing
a
winning portfolio of
stocks.2
The
variou
s
ltuilding
bloclcs
that I've presented under
these six basic
categories-
returtt on invested capital,