1 year ago

The “Masters of the Universe” Portfolio


Only Own Good Companies

Only Own Good Companies – Part II Mr. Smith writes in the Fundsmith Owner's Manual investors should strive for high quality businesses, which in his view are companies that sustain a high return on operating capital employed. In cash. The key to sustaining a high rate of return is repeat business. Companies that sell many small items each day are able to generate consistent returns versus those companies whose business is cyclical. Mr. Smith drives his point home dramatically in a speech by taking out his wallet - noting small cash, point of sale purchases aren’t prone to price negotiation. You want a soda; you open your wallet and pay for it. Small ticket, every day repeatable transactions. He doesn’t limit his investment universe strictly to noncyclical consumer goods. He’ll also look at business service companies that have a source of consistent repeat business as well as some capital goods companies that derive significant profits from an installed base by providing servicing and spare parts. Mr. Smith also seeks out businesses with intangible assets that are difficult to replicate. Those companies with important assets that are more than just physical property plant and equipment. These important intangible assets are brand names, patents, licenses, distribution networks, installed bases and client relationships. A combination of ‘intangibles’ that could be described as a company’s franchise.

Investing with the “Masters of the Universe” – Part III In parts one and two we covered my latest discovery, Terry Smith of Fundsmith. You may have your own list of “Masters of the Universe”, but I’ll highlight a few of my favorites and explain how I use intelligence collected from their publicly available data to make my own subsequent investments. The “Masters of the Universe” I follow report their holdings quarterly to the Securities and Exchange Commission by filing either a form 13-HR: Quarterly Report Filed by Institutional Manager, or form 13-F: Reports Filed by Institutional Investment Managers. Researching the 13-HR/13-F filings of your favorite investors on is the basis for investing with the “Masters of the Universe”. Example of Fundsmith’s most recent filing: Warren Buffett and Charlie Munger. This isn’t intended to be a history lesson on Berkshire Hathaway and these two need no introduction. Volumes have already been written on them. You can also learn a lot by researching Buffett’s early years. He wasn’t always “Mr. Buy & Hold”. For my personal portfolio, I’ve invested in the “Big 5”, those companies that comprise nearly 67% of the Berkshire Hathaway’s long portfolio according to publicly available filings. They are Wells Fargo (WFC), Kraft Heinz (KHC), Coca Cola (KO), International Business Machines (IBM) and American Express (AXP). You’re not just getting Warren Buffett’s