Fourteenth annual letter to owners of Fundsmith Equity Fund

[formthirteen]

The fourteenth annual letter to owners of Fundsmith Equity Fund has been published:

https://www.fundsmith.co.uk/media/31plodnq/2023-fef-annual-letter-to-shareholders.pdf

 

I try to follow these steps:

 

Quote

 

We continue to apply a simple three step investment strategy:

• Buy good companies
• Don’t overpay
• Do nothing

 

 

Doing nothing is the hardest part until you realize that you own a part of a great business.

 

I would like to see some valuation numbers in this table to be honest even though it doesn't matter that much when owning great businesses for decades:

 

 

 

Quote

We have held ten of our companies for more than 10 years, five of which since inception in 2010.

 

Edited January 9, 2024 by formthirteen

[schin]

@formthirteen Do you know what those ten companies are? I've always respected Terry Smith, but never dug in.

[formthirteen]

@schin the top ten holdings can be found here:

 

https://www.fundsmith.co.uk/factsheet/

 

    Microsoft
    Novo Nordisk
    L'Oréal
    Meta Platforms
    Stryker
    IDEXX
    LVMH
    Visa
    Philip Morris
    Automatic Data Processing

 

The companies on that list is a bit different than in their 13F reports due to L'Oreal and Novo Nordisk being foreign. I wish I hadn't sold MSFT for 27 USD.

[thowed]

@schin I have it somewhere, will try & dig up later.

[schin]

1 hour ago, formthirteen said:

@schin the top ten holdings can be found here:

 

https://www.fundsmith.co.uk/factsheet/

 

    Microsoft
    Novo Nordisk
    L'Oréal
    Meta Platforms
    Stryker
    IDEXX
    LVMH
    Visa
    Philip Morris
    Automatic Data Processing

 

The companies on that list is a bit different than in their 13F reports due to L'Oreal and Novo Nordisk being foreign. I wish I hadn't sold MSFT for 27 USD.

Thanks.

[John Hjorth]

There is also this book by Terry Smith :

 

Amazon : Terry Smith : Investing for Growth.

 

We also have a discussion of the book here on CoBF in the Books forum in this topic.

[ValueArb]

14 years in this business is an impressive accomplishment. As Charlie said the metrics you choose will drive the type of decisions you make, and it looks like they chose some decent ones.  

[thowed]

Not gospel but I reckon he's had following since inception in late 2010:

 

Microsoft

L'Oreal

Pepsi

Philip Morris

Stryker

Diageo

Unilever

 

and Visa & ADP have been in fund for over 10 years.

 

 

 

[mattee2264]

 

 

Above from TSOH Investment Research partially answers your question about valuation metrics. 

Although to a large extent the drift lower in FCF yields probably reflects multiple expansion in their initial investments and their buy and hold approach.

It is a very popular fund so I do wonder how they deal with the issue that most funds face of the most new money coming in when market valuations generally are elevated and money tending to exit at the very time that valuations are becoming attractive again. 

 

Edited January 10, 2024 by mattee2264

[formthirteen]

1 hour ago, mattee2264 said:

Above from TSOH Investment Research partially answers your question about valuation metrics. 

 

Thanks. This confirms what I thought. Microsoft EV/FCF is roughly 5x in 10 years, even PM is a lot more expensive.

 

I guess the trick is to find the high-quality companies before everyone else.

[John Hjorth]

Terry Smiths track record is indeed quite impressive. Almost by coincidence a few years ago [likely by looking at Dataroma, I think], I found out, that I had a sweet tooth for the same things as Mr. Smith.

 

One can read his stuff on and on. [Personally I'm still doing it.]

 

But no matter how you process his stuff and think about it, my observations are as follows :

 

1. Never any specific talk about new additions, untill they already are built to wanted /desired size, &

2. No tangible and / or specific comments related to what may have gotten the boot out of the boat [<- I'm not totally sure about the 'No' [ever] here, it may be incorrect, or just inaccurate.]

 

- - - o 0 o - - -

 

No matter how ones modus operandi or ones investment style, stock picking isen't an easy, nor trivial, thing.

 

Mr. Smith appears to have found his way forward. He has so far been damn good at doing what he says he's doing. [This label is certainly available for every money manager, for a variety of reasons.]