Trustnet Magazine 88 October 2022 | Page 8

Fundsmith Equity
COVER STORY

Eureka !

To be in with a chance of beating the market , you first need to invest differently from everyone else . Not only are the fund managers in the following article among the most successful in the business , they are also among the most stubborn – in the best possible way . All are happy to underperform over short periods , taking comfort from the fact they will be proved right over the long term – as they have been time and again in the past . But how do you come to develop a method of investing that allows you to consistently beat some of the smartest people in the land with millions of pounds ’ worth of resources at their disposal – and just as importantly , how do you maintain confidence in your approach the first time the market turns against you ? In many cases , the answer is by copying someone who has done it all before ...

Terry Smith

Fundsmith Equity

Fundsmith Equity manager Terry Smith says his investment strategy was born out of necessity : upon joining start-up Collins Stewart in the early 1990s , he realised it couldn ’ t afford to hire any top-ranked analysts of its own . As a result , he came up with the idea for a database system called Quest , which offered insight into whether companies created or destroyed value , and whether their shares were cheap or expensive . “ I have read Warren Buffett ’ s annual letter as chairman of Berkshire Hathaway since the early 1980s and admired his investment style ,” Smith explains . “ A few of the institutional investors we marketed Quest to in the US and the UK had an approach that was similar to Buffett ’ s , which confirmed to me it was a strategy that would deliver superior returns over the long term .” When Smith later became chief executive of Collins Stewart , it acquired Tullett Liberty , a business that had a pension fund in deficit . The trustees agreed to ditch the
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