INVESTING FOR GROWTH (BY TERRY SMITH) | Summary and Q&A

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May 14, 2022
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The Swedish Investor
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INVESTING FOR GROWTH (BY TERRY SMITH)

TL;DR

Terry Smith, a successful British fund manager, shares his strategy of buying high-quality stocks and avoiding overpaying in the stock market.

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Key Insights

  • 🔬 Investing in leaders of respective industries can be a promising strategy for potential investments.
  • 💪 Dividends may not always be necessary for strong investment returns.
  • 💪 Patient and prepared investors can find opportunities to buy strong companies at fair prices.
  • 🥶 Using the free cash flow yield to assess a company's value can provide a more accurate evaluation than relying solely on earnings.

Transcript

"Buy once, cry once" is the preferred strategy of the British fund manager Terry Smith, who has returned more than 500% in the stock markets since the inception of his "Fundsmith" back in 2010. Imagine that you are buying a car in two parallel universes. In one universe, you are purchasing an excellent quality car. In the other, you are buying one ... Read More

Questions & Answers

Q: What is Terry Smith's investing strategy?

Smith focuses on buying high-quality companies with strong financials and growth potential while avoiding overpaying for stocks.

Q: How does Terry Smith determine which companies are winners?

Smith suggests asking industry competitors which companies they would like to go head-to-head with. The company that is feared by its peers is often a true winner in the industry.

Q: Why does Terry Smith recommend not paying extra for dividends?

Smith explains that reinvesting earnings into the business can often generate higher long-term returns. A lack of dividends can be a positive signal if the company is using its earnings effectively.

Q: How does Terry Smith suggest identifying discounted opportunities?

Smith advises investors to wait for opportunities when high-quality companies are temporarily undervalued, such as during market downturns or when they report lower-than-expected quarterly results.

Summary & Key Takeaways

  • Terry Smith's "Fundsmith" has achieved over 500% returns since its inception in 2010.

  • Smith compares buying a high-quality car to investing in high-quality stocks, emphasizing the importance of long-term value over short-term cost.

  • He advises investors to look for companies with high profit margins, high return on assets, and increasing market shares.

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