Investment Insights: Evaluating Quality Companies

This chapter explores the methodology for identifying high-quality companies for investment, with a focus on return on capital employed and key financial indicators. The conversation emphasizes the importance of understanding management's approach to capital allocation and analyzing financial statements to detect potential red flags. Additionally, it contrasts long-term investment strategies against the modern tech obsession, highlighting the significance of competitive advantages and avoiding poor sectors.

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In this episode, William Green chats with British investing legend Terry Smith. Terry, a member of Bloomberg’s index of billionaires, manages the Fundsmith Equity Fund, which is the UK’s largest stock fund. Since 2010, it’s returned more than 600%, beating the MSCI World Index by over 200 percentage points. Here, Terry talks in depth about the skills, personality traits, & principles that catapulted him from poverty to the pinnacle of the investing world.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

04:01 - How Terry Smith was shaped by poverty & violence.

35:17 - How he achieved fame by exposing financial deception.

39:26 - What he looks for when identifying great businesses.

46:54 - Why many of his favorite companies are 100 years old.

51:56 - Which sectors he shuns & which he likes.

58:42 - How Microsoft embodies what he loves in a business.

1:00:29 - Why it’s worth paying up for the best companies.

1:20:15 - Why the US is his favorite place to invest.

1:21:44 - How being a CEO made him a better investor.

1:32:07 - What he learned from Sir John Templeton.

1:35:46 - Why he refuses to speak with brokers or read their research.

1:40:30 - Why it’s hard to be successful professionally & personally.

1:52:46 - Why he’s deeply skeptical about Tesla.

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

BOOKS AND RESOURCES

Terry Smith’s investment firm, Fundsmith.
Terry Smith’s book, Investing for Growth.
Terry Smith’s book, Accounting for Growth.
William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book.
Follow William Green on X.
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