It’s always worth listening to Terry Smith, and this year’s Fundsmith Shareholder Meeting was no exception which I watched from a recording – see link below. He always reminds you what makes for a good investment and why he has been so successful.
Last year the Fundsmith return was 22.1% which is slightly better than my own portfolio achieved probably because I have more small companies in my portfolio. That compares with his benchmark of 22.9% but I don’t think one should quibble about the difference.
The ROCE in his investee companies was 28% and he does not own any bank or energy companies which he pointed out have both underperformed over the last 5 years. He said most banks and energy companies are bad businesses, and bad businesses tend to remain so. I agree with him on that point.
The slide above was displayed which summarises the position of various industry sectors and tells you which to avoid..
Terry commented on ESG which is a hot subject at present but he said that although they take those into account there are other factors that are more important when selecting investments.
When asked about the impact of the war in Ukraine he said it should be viewed historically not hysterically. There tends to be a stock market panic when wars break out but then recovery usually takes place. He gave some examples
There was a question about the drop in the fund price by 10% since the year end – should we panic? Terry said he was not going to do so.
The recording can be seen here: https://www.fundsmith.co.uk/tv/
My view on recent performance? With war in motion and inflation beckoning, investors are tending to move their portfolios into what they consider “defensive” sectors. But this is likely to be only a temporary phase in a market rotation. Terry’s principle of only buying good companies with high returns on capital and high margins are the best defence against inflation and other economic threats.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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