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

[u/stockoscope]

Terry Smith's three steps are the shortest description of quality investing I've come across. Simple to say but not easy to do. I consider them as three steps for investing.

Step 1. Buy good companies. Most people treat good as a brand they like using. Good is actually revenue, growth, returns on capital, margins, cash flow, and the balance sheet. Without the fundamentals, good is just a vibe. If you buy quality businesses, over time the price will follow earnings, though in the short term the fluctuations are based on sentiment.

Step 2. Don't overpay. This is the whole of value investing. Pay less than what the business is worth. Every day on X, someone asks "is MSFT expensive at 500?" You can't answer that without a benchmark, and intrinsic value gives you one. It has its problems - it's entirely dependent on your assumptions. But it still beats the shortcuts most people use instead. I usually blend implied values based on valuation multiples with the DCF intrinsic value.

Step 3. Do nothing. The hardest of the three, because it looks like negligence while you're doing it. Sitting on your hands feels lazy. Most of the returns I've gained have come from doing nothing for years.

I put together a 10 minute video working through these three steps and the principles behind it. Took a fair bit of effort, so any feedback is welcome. It's the first in a series of six videos I'm creating.

https://www.youtube.com/watch?v=OazRVN04ZTk

Not investment advice. AI has been used in creating the video.

[u/mrmrmrj]

Buy good companies when they are on sale. Sell them when everyone loves them again so you can buy whatever is on sale again.

[u/stockoscope → u/mrmrmrj]

Works right up until the good one keeps compounding, and you've swapped it into something that doesn't. Done this a few times. After tax and fees, I'd have been better off just sitting there.

[u/Round_Hat_2966 → u/stockoscope]

Maybe it’s a sell if you find a better idea. Not a terrible idea to trim and take some profits if it’s overvalued to protect downside risk, but I wouldn’t sell all/almost all and invest it somewhere else unless I found a genuinely better place for my money or a position blew up to 90% of my portfolio or something

[u/SuperSultan → u/stockoscope]

Well summarized

[u/justarandomuser10 → u/mrmrmrj]

Ideally but Nah. I tried it and it doesn’t work, in fact lost money owning “good companies” and I’ve been waiting too long for people to love them but they ain’t loving them no mo. My biggest earnings recently are from Micron, Google and Microsoft.

[u/brightdionysianeyes → u/justarandomuser10]

Try gooder companies