I'm starting this blog mainly as a resource I wish I had when I started learning about investing. I will post some of my investment ideas for stocks listed on Bursa Malaysia and some material which I found helpful in the never-ending journey to be a better value investor.
(Those who have traveled further along the value investing road will recognize that I have adapted the name of the book by Guy Spier for my blog's.)
First up is the Owner's Manual for the Fundsmith Equity Fund.
Fundsmith was founded by Terry Smith. He earned some notoriety when, as an analyst for Barclays de Zoete Wedd, he wrote a sell note on Barclays itself.
Link to Owner's Manual: https://www.fundsmith.co.uk/docs/default-source/documents---owners-manuals/owners-manual.pdf?sfvrsn=6
Link to Fundsmith home page: https://www.fundsmith.co.uk/
If you will read it, I think you will agree with me it is rare and wonderful encapsulation of the philosophy/ mindset of how a value investor would want to run her portfolio and what type of companies she would want in her portfolio.
I have highlighted some key points to be compared with the wisdom of other investors.
We aim to buy and hold (for the long term)
As Buffett said, his favourite holding period is forever. What this forces us to do is to be very selective on the stocks we will add to our portfolio: it has to compound in value over the years aka be able to reinvest its earnings at a high rate. In turn, it is only by holding on to such companies that can compound value that the biggest gains can be made.
Mr Terry likens the investment career to a punch tram ticket which is spent after 20 punches, because those are probably the number of great ideas we will come across ever, and those are the only chances we will get. A consequence of this is that when we find an idea, we have to go big on it. This is captured by Mohnish Pabrai in his quote (author of The Dhandho Investor and fund manager): "Few Bets, Big Bets, Infrequent Bets".
We aim to invest in high quality businesses and We seek to invest in businesses whose assets are intangible and difficult to replicate
What I believe Mr Terry is speaking of here, amongst other things, is related to the concept of an economic moat, which allows a business to defend its competitive advantage against the never-ending threat to its returns on capital employed.
The concept of circle of competence then precedes this, for we have to be able to understand the business better than we know our right hand and its source of moat before we can even begin to say whether it is high quality or not.
We seek to invest in resilient businesses
This means, as Mr Terry puts it, he does not invest in industries which are subject to rapid technological innovation (Astro, Media Prima and The Star immediately come to mind).
Related Buffetism: “Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like.”
We only invest when we believe the valuation is attractive
This is probably one of the hardest concepts to fully adhere to, especially in the current times of quantitative easing, bull markets and inflated valuations. The valuations that come with the outstanding businesses are at such a premium you sometimes wonder who is willing to buy at such prices. As a result, we have to be patient and be decisive when the opportunity comes.
Last Buffetism: "Cash combined with courage in a time of crisis is priceless".
Bonus - Owner's Manual for the Fundsmith Emerging Equities Trust for us in Emerging Markets: https://www.feetplc.co.uk/docs/default-source/application-form/fs0514d_feet_owners_manual_v7_web_sprds.pdf
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