The Risk of Extrapolating Rolling Metrics
Shedding light on Fundsmith's summary table
Hi Partner!
In this new bi-weekly update, we’ve talked about:
Some of Terry Smith’s principles, and shed light on his summary table. It’s focused on quality (return on capital, profitability, and cash conversion (true cash flow vs. accrual accounting), but lacks information on reinvestment rate and incremental returns. In many ways, quality investors are very much influenced by past successes and extrapolate rolling metrics well into the future.
Last Monday’s pitch of Harvia to a Belgian family office, and our shared conclusion on what’s next for the Finnish sauna and spa manufacturer. It’s always great to exchange views with other long-term investors. This family office’s longest-held position is Berkshire Hataway (since 2004), while other notable positions include Constellation Software, Watsco, Fastenal etc.
Our updated BUY/HOLD/TRIM zones for the companies we cover (also shared on the Portfolio page). As we purposely don’t share explicit price targets, the price at which company X yields a CAGR of Y percent helps contextualize valuation/investor expectations vs. quality growth (ROIIC, reinvestment rate, cyclicality).
As usual, you can download the slide deck and transcript below.