Let’s get started – Part I This section is a culmination of research on publicly available information on Fundsmith’s investing philosophy. The "3x5” Philosophy Behind the Portfolio In a speech Mr. Smith laid out an investment philosophy I wrote down and carry with me on a 3x5 card: • Don't over diversify • Don't trade • Only own good companies • Buy them at a reasonable price • Finally, DO NOTHING Let's tackle each principle in our portfolio: 1. Don't over diversify Mr. Smith states in the speech 20 companies is plenty for diversification. 2. Don't trade If you’re buying stocks direct though platforms like Loyal3 and Computershare this becomes much less of a temptation. 3. Only own good companies The graphic below, taken from the Fundsmith Annual Shareholder letter, is a preview of what a 'good company' looks like fundamentally:
4. Buy them at a reasonable price When attempting to arrive at a reasonable price, my research indicates Mr. Smith looks for a 5 to 8% free cash flow (FCF) yield. 1, 2. 5. DO NOTHING The hardest part!