Find companies that focus on delivering value.
Not those who are looking to pacify Wall Street with short-term results.
Terry Smith is often referred to as "the English Warren Buffett".
He runs Fundsmith which has a fund size of £27.9bn.
Despite the size, Fundsmith did a CAGR of 18.4%.
In his book Investing for Growth, he explains his investing philosophy.
Here's a breakdown:
Find companies that focus on delivering value.
Not those who are looking to pacify Wall Street with short-term results.
Low multiples are not a reason to buy a company.
A ship will continue to sink if it has a hole in it.
"A stock may have a low valuation but an even lower intrinsic value. Buying such a stock is not a recipe for investment success."
For long-term investors, getting the quality of the business is more important than the valuation.
“An investor could have paid 281 times earnings for L’Oréal, 156 times for Colgate, and 147 times for Brown-Forman and still beat the market.”
Many of the best companies don't show earnings today.
But that's because they're heavily reinvesting for the future.
It's just that the earnings hasn't show up.
Growth is good only when the return on invested capital (ROIC) exceeds the cost of capital (COC).
If COC > ROIC, the company destroys value as it grows.
A repurchase only creates value if the shares are trading below intrinsic value and there is no better use for the cash.
Often times investors hold back from buying because they "missed the boat".
Or they're waiting for it to "retrace back".
If it's a good company and within your buy range, just buy it.
-If you don't fully understand it, don't invest
-Don't try to time the market
-Minimize fees
-Deal as infrequently as possible
-Don't over-diversify
-Never invest in poor-quality companies
-Buy shares in a business which can be run by an idiot
-Don't engage in "greater fool theory"
-If you don't like what's happening to your shares, switch off the screen
I write about investment concepts, business breakdowns and growth philosophies.
Every week.
https://t.co/96pjE7aGBm
More from Thomas Chua
Buffett's letters taught me more about investing than any business school ever could.
Even after investing for 14 years, I uncover new insights every time I reread his letters.
Recently, I reread his letters from 1977 to 2020 for a third time.
Here are my key insights:
1. Moat is NEVER stagnant
A company's competitive position either grows stronger or weaker each day.
Widening the moat must always take precedence over short-term targets.
2. Commodity businesses
A business without moat will have its returns competed away.
Regardless of improvement, your competitors will quickly copy your advantage away.
Where returns on capital is dismal, reinvestment will only destroy value.
3. The flywheel effect
Buffett was preaching about the flywheel effect before it became cool.
Back then, newspapers were similar to today's platform businesses like Amazon, Meta, and App Store.
More readers beget more advertisers beget more readers.
4. Operating leverage
Companies with high fixed costs and low variable costs will see earnings rise faster than revenue.
However, it cuts both ways.
It becomes a disaster when revenue is declining.
Check out my article on how operating leverage works: https://t.co/Nv747oBAK0
Even after investing for 14 years, I uncover new insights every time I reread his letters.
Recently, I reread his letters from 1977 to 2020 for a third time.
Here are my key insights:
1. Moat is NEVER stagnant
A company's competitive position either grows stronger or weaker each day.
Widening the moat must always take precedence over short-term targets.
2. Commodity businesses
A business without moat will have its returns competed away.
Regardless of improvement, your competitors will quickly copy your advantage away.
Where returns on capital is dismal, reinvestment will only destroy value.
3. The flywheel effect
Buffett was preaching about the flywheel effect before it became cool.
Back then, newspapers were similar to today's platform businesses like Amazon, Meta, and App Store.
More readers beget more advertisers beget more readers.
4. Operating leverage
Companies with high fixed costs and low variable costs will see earnings rise faster than revenue.
However, it cuts both ways.
It becomes a disaster when revenue is declining.
Check out my article on how operating leverage works: https://t.co/Nv747oBAK0
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