Navigating Quality Investing | 13min snip from We Study Billionaires

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TIP526: Quality Investing: Lessons from Terry Smith

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CHAPTER

Navigating Quality Investing

This chapter explores the nuances of quality investing, focusing on the impact of free cash flow and stock-based compensation in the tech sector. It emphasizes the importance of fundamental analysis and selecting companies with robust competitive advantages for long-term success. Through historical examples, it illustrates how investors can benefit from identifying high-quality firms that can sustain growth and deliver superior returns.

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On today’s episode, Clay Finck discusses the investment philosophies and framework of Terry Smith, who is the founder and CEO of Fundsmith and also known as the Warren Buffett of Great Britain.

Smith started Fundsmith in 2010, and ever since has returned 478% to his investors versus his benchmark returning 256%. He did this using the simple framework of buying good companies, not overpaying, and holding them for the long-term.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

02:12 - Why Terry Smith only seeks to own high-quality companies.

04:52 - How investors can go about determining the quality of a business.

08:01 - How Terry Smith compares the valuation of his portfolio against that of the S&P 500.

15:15 - Why investors must be cognizant of stock-based compensation when valuing a company.

29:28 - Why macroeconomic views and opinions are irrelevant for investors in quality businesses.

46:39 Why stocks are the best long-term investment relative to other asset classes.

53:51 - What Terry Smith’s top US equity holdings are today.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Terry Smith’s Shareholder Letters.
Rebecca’s Article on Mean Reversion.
Don’t miss our review of Four Wide Moat Stocks for 2023.
Check out our takeaways from Warren Buffett's Shareholder Letters.
Follow Clay on Twitter.

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