Quality, tenacity and can-do: Terry Smith of Fundsmith on his investing and career success

“Buy good companies, don’t overpay and do nothing.”

So says Terry Smith, the renowned Fundsmith fund manager, who recently joined us in a webinar exclusively for Canaccord clients. But as Terry revealed over the course of this informative and entertaining session, there’s more to his enduring success than that simple formula.

How did Terry Smith’s background shape his investment and business achievements?

Terry’s track record speaks for itself, and he revealed himself to be a man who is not afraid to do things differently.

Whether it’s the work ethic he learned from his childhood in East London; getting fired and then his experience in running businesses as well as investing in them; his willingness to try something different; or a blend of all three, Terry’s experiences make him an unusual figure in the fund management world.

He also told our clients that it’s all about the execution: bright ideas are commonplace, but not many people have the tenacity to see them through.

How does he decide what makes a good company?

“Don’t ask if something is cheap; ask if something is good.”

For Terry, a ‘quality’ stock will do better than the rest over the long run - but what does quality mean for Terry and Fundsmith?

He gave our audience three key factors he looks for in a company:

• High returns on operating capital employed* in cash
• Growth to allow reinvestment of company cash flows at high rates of return
• Sustainable competitive advantage.

What are Terry’s thoughts on investment opportunities?

Terry also shared his thoughts on global trends such as consumerisation and premiumisation of the developing world, ageing populations and increasing pet ownership, and discussed the opportunities they might bring for investors.

He also answered questions from clients on topics as wide-ranging as investing in China to inflation, and from morality in business to market timing.

Thank you to Terry for your fascinating insights, and we look forward to continuing our fruitful relationship with you and the rest of the Fundsmith team.

*Return on capital employed is a measure of a company’s profitability and the efficiency with which it uses its capital. It is calculated as operating profit divided by capital employed.

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This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.

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