Investment Philosophy of "the English Warren Buffett", Terry Smith

Buy good companies, Don't overpay, Do nothing. A solid framework to generate stock ideas

1. Terry Smith: "the English Warren Buffett"

Fundsmith is a London-based investment management company, founded in 2010 by Terry Smith. Smith has been referred to as "the English Warren Buffett" after achieving superior investment returns with strategies similar to the U.S. investor.

2. Investment Philosophy

3. Buy good companies

Consistently high returns on capital are one sign we look for when seeking companies to invest in. Another is a source of growth — high returns are not much use if the business is not able to grow and deploy more capital at these high rates.

4. Don’t overpay

The second leg of our strategy is about valuation. The weighted average free cash flow (‘FCF’) yield (the free cash flow generated as a percentage of the market value)

5. Do nothing

Turning to the third leg of our strategy, which we succinctly describe as ‘Do nothing’, minimising portfolio turnover remains one of our objectives

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6. So what

The investment philosophy of Terry Smith is first filter out using metrics, companies which do not meet the criteria of quality, growth, predictability and sustainability. One is then left with a pool of investable stock ideas. Further judgement is applied on the pool of investable stock ideas which meet you risk & return preferences.

One can use standard screeners to generate the stock ideas by using the metrics like margin, ROCE, free cash flow growth etc