Tuesday, 14 May 2013 10:55
Terry Smith says boring companies are best
Terry Smith from Fundsmith believes companies should not be bought based on management or individuals.
In his speech 'Why Boring is Best' at the Morningstar Investment Conference today, Mr Smith looked at why companies with high free cash flow yields, predictable returns and sound business models are overlooked by investors.
Mr Smith is founder of fund management business Fundsmith and chief executive of broker firm Tullett Prebon.
He said: "I'm not interested in the management of a firm. I say buy a business that could be run by an idiot because at some point they will be. I've never bought a company that is dependant on a certain individual."
To illustrate this he gave the example of Apple which he said had a "very low" chance of doing as well as it did with Steve Jobs at the helm.
He said financial advisers were a "very significant" part of what he did and that advisers and private wealth managers made up 60 per cent of its users.
A description of a "boring company" would be one that has return on capital above its cost of capital, meaning its value grows everyday.
However, Mr Smith acknowledged that these companies could be more expensive as people were paying for certainty. He gave the example of paying for a pharmaceutical drug that would definitely increase your life instead of paying less for one that had a smaller probability of success.
He said: "Yes, they are more expensive than they were but not more expensive than 20 years ago. People need to get away from simple parameters such as PE [price-earnings ratio], they're not all created equally."
Financial Planner will be attending both days of the conference, live tweeting via our feed @FPM_Online using the hashtag #MICUK and writing stories on major speakers.
Speakers at the event today include Greg B Davies from Barclays Wealth, Holly Mackay from The Platforum and Stephen Snowdon from Kames Capital.
There will be a panel session on platform investment trends with Mark Polson from the Lang Cat, Ian Taylor from Transact, Tom Sheridan from Seven Investment Management and Graham Bentley from gbi2.
Also available is a dedicated Morningstar Conference mobile/tablet app where delegates can access presentations, videos and speaker profiles.
In his speech 'Why Boring is Best' at the Morningstar Investment Conference today, Mr Smith looked at why companies with high free cash flow yields, predictable returns and sound business models are overlooked by investors.
Mr Smith is founder of fund management business Fundsmith and chief executive of broker firm Tullett Prebon.
He said: "I'm not interested in the management of a firm. I say buy a business that could be run by an idiot because at some point they will be. I've never bought a company that is dependant on a certain individual."
To illustrate this he gave the example of Apple which he said had a "very low" chance of doing as well as it did with Steve Jobs at the helm.
He said financial advisers were a "very significant" part of what he did and that advisers and private wealth managers made up 60 per cent of its users.
A description of a "boring company" would be one that has return on capital above its cost of capital, meaning its value grows everyday.
However, Mr Smith acknowledged that these companies could be more expensive as people were paying for certainty. He gave the example of paying for a pharmaceutical drug that would definitely increase your life instead of paying less for one that had a smaller probability of success.
He said: "Yes, they are more expensive than they were but not more expensive than 20 years ago. People need to get away from simple parameters such as PE [price-earnings ratio], they're not all created equally."
Financial Planner will be attending both days of the conference, live tweeting via our feed @FPM_Online using the hashtag #MICUK and writing stories on major speakers.
Speakers at the event today include Greg B Davies from Barclays Wealth, Holly Mackay from The Platforum and Stephen Snowdon from Kames Capital.
There will be a panel session on platform investment trends with Mark Polson from the Lang Cat, Ian Taylor from Transact, Tom Sheridan from Seven Investment Management and Graham Bentley from gbi2.
Also available is a dedicated Morningstar Conference mobile/tablet app where delegates can access presentations, videos and speaker profiles.
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