14 Lessons From Terry Smith 🏰

3 min read 🧠

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14 Key Takeaways from the interview that will make you a better investor

In 2022 Terry Smith gave a brilliant interview with the Economic Times. Smith promoted:

• Buying good companies

• Don't overpay

• Do nothing

Terry Smith is the fund manager of Fundsmith, a Quality-based investing fund from the UK.

Fundsmith has a compounded annual growth rate of 15.4% vs. 11.7% of the index.

Terry Smith is a wealth of information and someone we should listen to when he shares his vast wisdom.

You can read his famous Owners Manual here (Recommended).

Let’s get into the lessons! 👇

1. The hardest thing for investors is "the waiting".

2. Investors should own a small number of high-quality, resilient, global growth companies of good value.

Here are Fundsmiths Top 10 holdings to give you an idea:

Source: https://www.fundsmith.co.uk/factsheet/

3. Investors tend to evaluate their holdings in every reporting period, this is pointless according to Smith. The investment must be evaluated over a much longer time period than a quarter or even a year to be valuable.

Had you evaluated Chipotle Mexican Grill on a few poor quarters in 2017/2018, you would have missed out on an incredible run of +1070%:

4. "To assess an investment strategy or a fund, you need to see its results across a full economic cycle with both bull and bear markets"

5. Investing strategies relying on market timing should be avoided

6. "As the old saying goes, there are only two types of investor: those who can’t time the markets, and those who don’t know they can’t time the markets"

7. Investors should aim to invest in companies that break the rules of mean reversion. Companies with sustained high returns on capital and strong moats.

Visa is a beautiful example of a quality business that breaks this rule:

8. Smith encourages investors to focus on intangible assets, such as brand names, high market share, and patents - these assets should be hard to replicate.

5 standout examples:

• Alphabet GOOGL 0.00%↑

• Coca Cola COKE 0.00%↑

• Microsoft MSFT 0.00%↑

• Novo Nordisk NVO 0.00%↑

• Apple AAPL 0.00%↑

9. Invest in companies with growth potential.

10. Look for businesses with a high certainty of growth from reinvesting the proceeds in the business at high rates of return

11. Invest in businesses that require no significant leverage to outperform

12. Avoid companies that are susceptible to disruption

13. Only pick great businesses you have a high conviction in

14. Investors are their own worst enemies - the average fund investor significantly underperforms the fund they invest in

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