4 key investment principles by Terry Smith to help wade through market volatility
Warren Buffett" due to his dedication to value investing and remarkable performance over time. As the founder and Chief Investment Officer of Fundsmith, a United Kingdom-based investment management firm, he has built a reputation for prioritizing high-quality, globally listed companies. At the core of Smith’s investment philosophy is the strategy of acquiring and retaining robust businesses for extended periods, diverging from the short-term trading strategies commonly used by numerous fund managers.
His focus lies on extensive research and comprehension of the companies in which he invests, aiming to pinpoint those possessing enduring competitive advantages and effective management teams. This methodical and discerning approach has yielded significant benefits for Fundsmith investors, exemplified by the company’s flagship Equity Fund, which has maintained an average annual return of over 478 per cent since its establishment in 2010. Examining Smith’s success highlights the importance of understanding his investment philosophy and what distinguishes him from the crowd.
His stock-picking strategy revolves around three key principles: Investing in sound companies, avoiding overpayment, and maintaining a long-term holding approach. Search for companies that consistently achieve a return on invested capital (ROIC) well above their cost of capital, demonstrating efficient and profitable resource deployment. Smith places importance on robust competitive advantages, often referred to as moats, which safeguard a company’s profitability against competition.
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