Algy's Investment Podcast
Terry Smith - Compound Interest
Oct 2, 2023
Terry Smith discusses the power of compound interest and the value of reinvesting profits in businesses. He emphasizes the importance of return on capital employed, diversification with around 20 companies, and a patient, low turnover strategy. Smith also talks about analyzing original financial statements over adjusted numbers, maximizing returns, evaluating investments, and the importance of extensive learning before investing.
34:40
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Quick takeaways
- Equities can compound over time through reinvested earnings, offering potential returns higher than seeking new investments.
- Balancing diversification and concentration with around 20 holdings, emphasizing low turnover rates, and evaluating free cash flow yield are key in Terry Smith's investment strategy.
Deep dives
The Power of Compound Interest in Equity Investing
Equities stand out as the unique asset class capable of compounding over time due to companies reinvesting a portion of their earnings. Terry Smith's successful investment strategy revolves around this compounding effect, aiming for company profits to grow consistently. By retaining earnings and reinvesting at high rates, companies can significantly boost the value of investments, offering potential returns higher than seeking new investments.
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