3 takeaway tips from Terry Smith’s latest letter to shareholders

first_img I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. 3 takeaway tips from Terry Smith’s latest letter to shareholders Based on his track record, Terry Smith is a man worth paying attention to. As of 31 December 2019, Smith’s Fundmsith Equity Fund had achieved an annualised rate of return of 18.2%, compared to the 11.9% achieved by its benchmark.This translates to a cumulative return of a little over 364% for investors since its inception in November 2010. No wonder he’s often to referred to at the ‘UK’s Warren Buffett’. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Like those of the Sage of Omaha, I think Smith’s annual letters to shareholders contain lots of great advice for all long term investors. Here are some of the key takeaways from this year’s reflections.Ignore the unpredictableDespite achieving a total return of 25.6%, Smith said the performance in 2019 had been impacted by the rally in sterling following renewed hope of a breakthrough on Brexit. Considering the majority of Fundsmith’s holding are US-based, this clearly had implications for how the portfolio behaved overall.Smith doesn’t think investors should lose sleep over such things. Instead, he recommended they imagine asking the management teams of those companies the fund owned to identify the top three factors responsible for their success. Things like “strong brands”, “market share” and “product innovation” would likely be mentioned. One thing they probably won’t talk about is currency movements.This way of thinking neatly sits well with the Foolish philosophy that part of being a good investor is learning what you can control and what you can’t. Since no one has any idea where anything related to the economy is going for certain, it’s far better to concentrate on finding great businesses that are worthy of your capital. Value isn’t everythingFundsmith’s investing strategy is simple. Buy great companies, don’t overpay, and then do nothing. Notice, however, there’s no reference to focusing on what’s cheap.Using an example from 2012, Smith suggested we should be wary of listening to anyone who believes that the strong run in stocks, such as those held by Fundsmith, was about to end and a rotation into value was just around the corner. Those taking this advice to heart, he said, would have lost out on all the gains achieved by so-called ‘expensive’ stocks in the years since. Cheap stocks are rarely good businesses, Smith added, because most won’t make good returns on the capital they invest. Moreover, anyone profiting from one would then need to find another. This incurs transaction costs that ultimately impact on performance. Whether you share his aversion to value for its own sake or not, it’s hard to argue against this last point.Keep an eye on liquidityWhile previously reluctant to do so, Smith also gave his thoughts on fellow fund manager Neil Woodford’s fall from grace. Like many others, he identified that Woodford’s woes (and, consequently, those of his investors) were caused by the “lethal combination” of operating an open-ended fund that had a lot of cash invested in unquoted, highly illiquid companies. This is problematic when everyone wants to get their money out at once.Given Smith’s assertion that 57% of his fund could be liquidated in seven days, it seems unlikely his shareholders will ever encounter this scenario.Nevertheless, his decision to mention this within his letter is a good reminder of the need to monitor the actions of those working on your behalf. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Simply click below to discover how you can take advantage of this. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Paul Summers | Monday, 27th January, 2020 center_img “This Stock Could Be Like Buying Amazon in 1997” Our 6 ‘Best Buys Now’ Shares Image source: Getty Images See all posts by Paul Summers Enter Your Email Address Paul Summers owns shares in Fundsmith Equity Fund. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.last_img read more