Terry Smith, a British investing titan and manager of the Fundsmith Equity Fund, shares his remarkable journey from poverty to becoming a billionaire. He discusses his knack for spotting great businesses, revealing why many of his favorites are over a century old. Smith candidly critiques sectors like tech, expressing skepticism about Tesla while praising Microsoft's business model. He explains the importance of understanding economic realities in investing and shares lessons learned from Sir John Templeton, all while emphasizing resilience in the face of professional challenges.
Terry Smith's journey from poverty in East London to billionaire investor reflects his resilience and ambition cultivated by challenging circumstances.
He emphasizes a quality-over-quantity investment strategy, prioritizing high-return, cash-generating companies instead of chasing market trends.
Education and mentorship played crucial roles in Smith's growth, showcasing the importance of knowledge and guidance from experienced individuals.
Inspired by historical figures, Smith applies lessons from the past to guide his investment philosophy and business practices.
His philanthropy focuses on creating sustainable change through education and community development, reflecting the values instilled in him from his upbringing.
Deep dives
Terry Smith's Investment Success
Terry Smith has achieved remarkable investment success, significantly outperforming the MSCI World Index over 14 years, with his primary equity fund boasting a cumulative return exceeding 600%. His firm, Fundsmith, is prominently recognized in the UK with over $27 billion in assets under management. This success stems not just from returns but from a consistent investment philosophy built around high-quality, cash-generating companies. Smith emphasizes the importance of investing in businesses with robust fundamentals rather than following market trends or fads.
Overcoming Early Adversity
Growing up in the East End of London during the 1950s and 60s, Smith faced challenges such as poverty and a rough neighborhood, but these hardships instilled in him a strong drive to succeed. He experienced a difficult childhood, including a lack of basic amenities in his home, which motivated him to seek a better life. Smith attributes part of his resilience and determination to his upbringing, using his early circumstances as fuel for his ambition. His journey from a struggling background to becoming a billionaire investor exemplifies his grit and tenacity.
Value of Education and Mentorship
Education played a vital role in Smith's journey, as he attended a grammar school and later university, where he cultivated a love for history. Despite encountering financial instability, he recognized the power of knowledge and skill development in changing his circumstances. Throughout his career, he sought mentorship from experienced individuals, highlighting the significance of guidance from those with more knowledge. His commitment to learning and professional growth reflects his belief in preparation and seizing opportunities.
Philosophy of Quality Investing
Smith's investment philosophy centers around quality over quantity, focusing on companies that offer high returns on capital and consistent cash flow. He emphasizes analyzing the underlying business models to understand how these companies generate profits and sustain growth, avoiding those that merely present attractive earnings reports. His approach advocates purchasing high-quality businesses at fair or undervalued prices, with a keen eye for economic realities. This methodology steers him clear of companies in poorly performing sectors that typically destroy value.
The Influence of Historical Figures
Inspired by historical figures, Smith draws lessons from their achievements and failures that resonate with his investment philosophy. He frequently references figures such as Henry Ford and the incredible impact of the Model T on society, illustrating the transformative power of innovation and dedication. Smith's admiration for successful historical narratives fuels his desire to emulate similar principles within his own investment practices. Studying the past allows him to identify the qualities that contribute to long-term success.
Gathering Insights from Collecting Cars
Smith's collection of historical and iconic cars reflects his broader views on value and quality in investments. Each car signifies a unique story and highlights the history of innovation, much like the businesses he invests in. He collects not only desirable vehicles but also historic failures, utilizing them as learning tools to dissect mistakes and successes in various industries. This hobby underscores his belief that understanding past failures can provide key insights into avoiding similar pitfalls in investing.
Battles Against Conventional Norms
Throughout his career, Smith has often challenged prevailing business norms and industry expectations. His early conflicts with firms like Barclays illustrate his commitment to speaking out against complacency and mediocrity in investment practices. This defiance has defined his reputation in the finance world, as he consistently prioritizes transparency and ethical practices, even when faced with opposition. Smith's willingness to go against the grain reflects his belief that success often requires questioning established norms and pursuing what genuinely works.
Dedication to Philanthropy
Smith's philanthropy emphasizes private initiatives funded with personal money, focusing on practical opportunities rather than public displays of charity. He aims to create sustainable change by supporting educational programs and community development projects. In Mauritius, he endeavors to help local children gain access to quality education, demonstrating how he translates his success into actionable contributions. This dedication to uplifting others through opportunity embodies the lessons he learned from his upbringing, valuing hard work and giving back.
Balancing Wealth and Happiness
Smith shares insights about wealth accumulation, cautioning against the superficial attractions of luxury possessions. He acknowledges some frustrations with the responsibilities that come with expensive homes and vehicles, suggesting true satisfaction lies beyond mere material wealth. Instead, he promotes a balanced perspective on life, prioritizing meaningful experiences and relationships over material possessions. For Smith, legacy is best measured in the impact one makes rather than the number of cars or luxurious items owned.
Lessons from Keith Park's Legacy
Terry Smith's dedication to honoring Keith Park reflects his appreciation for unsung heroes whose contributions significantly affected historical outcomes. The campaign to erect Park's statue highlights Smith's commitment to recognizing individuals whose sacrifices and bravery are often overlooked. Together with the Park family, he sought to ensure Park's legacy would be honored for generations to come, learning from his examples of leadership and resilience. This initiative underscores Smith's belief in the value of remembering history and elevated contributions to society.
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.
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