“Buy good companies. Don't overpay. Do nothing.”

This is a quote from Terry Smith, a well-known fund manager from the UK. His fund, Fundsmith Equity, invests in high quality businesses, and has become the largest UK fund with assets under management of $38bn at time of writing (September 2021). It's a simple strategy, and one that has, at least in part, inspired how I operate the portfolio. I use a combination of technical and fundamental analysis to make investment decisions as outlined below.

Step 1 - Technical Analysis

I analyse a huge amount of performance data to narrow down the universe of potential candidates for the portfolio. Every single stock available for investment on eToro (around 3,000 individual stocks!) is considered, and only the very best make it through this filtering process. These are generally the stocks that have good short-term, medium-term and long-term momentum.

Step 2 - Fundamental Analysis

From this much smaller universe, I look at each company individually. I aim to select high quality companies with good long term growth prospects - this is where the "buy good companies" part comes in. Valuation is considered ("Don't overpay") but sometimes you do have to pay a premium to become part-owner of an excellent company.

Step 3 - Asset Allocation

This is more subjective, using my own judgement to build a diversified portfolio to minimise risk and volatility. This involves deciding what percentage to allocate to each individual stock, as well as taking a high level view of the portfolio to make sure that there's a sensible allocation to each sector.

Step 4 - "Do Nothing"

This step is just as important as the others. I generally only make small tweaks to the portfolio, and I don't try to time the market by trading in and out of positions. Good companies should be held for a long time in order to benefit from their success.

Taking a look at Terry Smith’s top holdings, there is unsurprisingly some overlap with the current portfolio. At the time of writing, we hold 5 of his top 10 holdings: Microsoft, PayPal, Idexx, Intuit and Estee Lauder.

I hope this post gives you some good insight into my process, and some confidence in the portfolio and how it’s been constructed.
Note: This is an adaptation of my post on eToro from 24th September 2021.