Terry Smith - Compound Interest

[@ministry_of_love]

5:50 Sectors avoided: banks, insurance companies, real estate, airlines, minerals, mining, utilities etc 6:38 Favoured sectors: consumer, healthcare and technology.

[@lordsalisbury8507]

Fascinating discussion. Terry needs to do more of these.

[@invierteconpepe_]

Great Interview! I also recommend his book "Investing fo Growth"! Lot of knowledge and insight there.

[@GeorgeNorris888]

Great podcast team.

[@wasilwestside]

Love it. superb talk

[@pt99810]

Excellent discussion. So much realistic, experience-based common sense and sound judgement.

[@matthewminors236]

Well researched questions for terry smith (one of my favourite investors). Excellent interview and great length also. I have subscribed for more in the future

[@andypicken7848]

Gotta hand it to TS he certainly talks a good game. Thanks for posting

[@varunjain5789]

Terry being as eloquent as ever...

[@ddubsr5886]

Fantastic interview!

[@jesusson7536]

💯💯💯💯💯🫡🫡🫡🫡

[@NGE0001]

Bought both his books, great reads !

[@wasilwestside]

What’s your biggest takeaway from his books ?

[@brianbirnbaum9760]

Terry is a G

[@wasilwestside]

How do you know? and even if he is, that's his personal matter. Gays are also human beings.

[@SimonStormFrigon]

Terry Smith's investment philosophy centers on harnessing the power of compound interest by identifying and holding high-quality businesses that can consistently generate strong returns on capital over long periods. His approach has led to VERY impressive long-term performance for his Fundsmith Equity Fund since its inception in 2010

[@codex8718]

when he talks about the free cashflow yield do you think he is talking about the free cashflow to the firm or the free cashflow to equity?

[@Muttley24133]

The video says that the expected return of a stock is the company's growth rate plus the free cash flow (FCF) yield. Hmm, let's consider this: suppose the stock price is very high (e.g., stock price 100), resulting in an FCF yield of zero. In this case, the expected return would equal the company's growth rate. However, it would remain the same even if the price were much higher, say double, because the FCF yield cannot go below zero. This doesn't make sense at all. Can someone explain?

[@kgr_alex]

It's a rule of thumb/napkin math.

[@Muttley24133]

Ok it's a rule of thumb that for overpriced assets growing at a fast pace can be measleading. It is dangerous giving this kind of rules at people on the web. A lot of people would buy very dangerous assets loosing a lot of money.

[@moreno3461]

Mr. Smith says that the companies he holds in his portfolio have a ROCE of 30%. I tried to calculate it according to the indications he gave in this interview, but it doesn't seem right to me. Many of the stocks he holds in his portfolio do not even reach 15%. Why is there this discrepancy between what he says and what he does? Does anyone know how to explain it to me? Take McCormick for example.

[@lukenewton2721]

They post their AGM which shows these figures on their own youtube page

[@moreno3461]

@@lukenewton2721 Even Emron was showing its numbers. It's like asking the host if the wine is good... better to do the calculations yourself and then cross-check. I find that many of the companies in its portfolio have a ROCE of less than 20%, and even well-known sites confirm my calculations. Try googling McCormick ROCE and see how much it is.

[@tijilsingh8689]

their portfolio has roce of 30%.they calculate it on basis of weightage/position size of stocks in the portfolio

[@Art-is-craft]

@@moreno3461 So what you are saying is your method of calculating ROCE is superior is it is true and Terry Smith method is not.

[@arranmacdonald6897]

My guess is that they strip out goodwill and intangibles, in effect making it 'return on TANGIBLE capital' - but I could be wrong.

[@JLL12345]

I do not understand why he believes bonds and property cannot compound. As you receive a coupon on a bond, you can use it to… buy more bonds. Most platforms allow you to do this automatically. Equally, when a REIT pays a dividend, you can use it to buy more of that REIT, thus buying more property. That point was lost on me, but I could have misunderstood.

[@nh64uk78]

There is one "misleading" statement that Terry Smith declares within the Fundsmith monthly fact sheet - "There were no outright purchases of holdings made in the month". If you purchase one share or a million shares of a company, that is an outright purchase. Otherwise an "outright purchase" can be an ongoing & never-ending process.

[@leesmith9299]

i don't think the companies he invests in pay "interest" do they. i see on forums all the time people very confused asking "how does compound interest work with equities?". the first thing confusing is equities don't pay interest. second is the returns are not gradually attained like the word "compound" makes people think. "compound returns" is the term to use and clarify that they come in ups and downs but terry tries to find companies where the underlying fundamentals go up predictably even if the returns might not.

[@eduard-adrian4778]

11:20

[@MindTheLongterm]

great conversation!

[@alanwerrell5411]

According to the Hargreaves and Lansdown website the cumulative performance of Fundsmith is 60% over the past 5 years. The 5 year cumulative performance of the Legal & General Global 100 Index Trust is 111%. Why would you pay Terry Smith 1% to underperform the index which only costs 0.09%??

[@arranmacdonald6897]

Damn, how did I not know about this L&G fund?! Basically looks like a much better version of the index, and as you say, is very low cost

[@markkanen3906]

Because the risk is much smaller... basic finance 101

[@alanwerrell5411]

91.9% of large-cap active managers did not outperform the S&P 500 Index over five years. The cumulative performance of the S&P 500 over the past 5 years, as of April 2024, is 70.94%. - Do your research. Fundsmith cumulative return over 5 years is 60%.

[@arranmacdonald6897]

@@markkanen3906 Zero understanding of what risk really is

[@GavinLawrence747]

I don't disagree with you in principle, but remember the last 5 years have NOT exactly what you would consider "regular" circumstances.

[@bigbillyz]

What’s Son E

[@JaySharma45353]

who's here after BM sr haha

[@jesusson7536]

🫡🫡🫡🫡🫡🫡🫡🫡

[@BorisGligorijevic]

Small correction: China is the largest economy now. At least, judging by PPP, which is the more objective measure.

[@vivekshivdasani9521]

If you fold a paper fifty times in half it’s thickness will reach the sun.

[@mitesh8522]

In his recent AGM, Terry demonstrated he keeps losing against the market.

[@michaeldempsey22]

Since launch in 2010, it has returned 607% compared with 345% for the MSCI World index and 231% for the average global fund. 'Keeps losing against the market' Absolutely

[@Darudo_sandstorm]

He unfortunately sold Amazon , adobe and intuit at the wrong time. All of them are up by almost 50 % .

[@mitesh8522]

@@michaeldempsey22 I take it you didn't watch AGM then? Look at his track record over the last 5 years and then assess.