On The Money

100th episode special: the Terry Smith interview

Sep 19, 2024
Terry Smith, manager of Fundsmith Equity, shares his expertise on navigating today's challenging stock market landscape. He discusses the significant influence of tech heavyweights and the rise of passive investing. Terry reveals his recent stock purchases while explaining why he sold Diageo and opted against Nvidia. He challenges conventional views on dividends, advocating for a focus on total returns over income. Additionally, he provides insights into the UK stock market and cautions against the pitfalls of mistaking low prices for true value.
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INSIGHT

Performance Headwinds

  • Fundsmith Equity's recent underperformance is partly due to being underweight in the "Magnificent Seven" tech stocks.
  • However, rising interest rates and the tech boom also created headwinds for their quality-focused strategy.
INSIGHT

Index Funds and Market Concentration

  • The increasing concentration of stock market returns in a few companies makes it harder for active funds to outperform.
  • Index funds, being market-cap weighted, exacerbate this trend, creating a momentum effect.
ANECDOTE

Why Fundsmith Doesn't Own Nvidia

  • Terry Smith explains why Fundsmith doesn't own Nvidia, despite its success.
  • He cites concerns about its unpredictable business model pivots and its position in a capital spending cycle.
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