Investing for Growth: How to Make Money by Only Buying the Best Companies in the World

by Terry Smith

Buy good companies. Don’t overpay. Do nothing.

Some people love to make successful investing seem more complicated than it really is. In this anthology of essays and letters written between 2010–20, leading fund manager Terry Smith delights in debunking the many myths of investing – and making the case for simply buying the best companies in the world.

These are businesses that generate serious amounts of cash and know what to do with it. The result is a powerful compounding of returns that is almost impossible to beat. Even better, they aren’t going anywhere. Most have survived the Great Depression and two world wars.

With his trademark razor-sharp wit, Smith not only reveals what these high-quality companies really look like and where to find them (as well as how to discover impostors), but

- why you should avoid companies that abuse the English language
- how most share buybacks actually destroy value
- what investors can learn from the Tour de France
- why ETFs are much riskier than most realise
- how ESG investors often end up with investments that are far from green or ethical
- his ten golden rules for investment
- and much, much more.

Backed up by the analytical rigour that made his name with the cult classic, Accounting for Growth (1992), the result is a hugely enjoyable and eye-opening tour through some of the most important topics in the world of investing – as well as a treasure trove of practical insights on how to make your money work for you.

No investor’s bookshelf is complete without it.

Genres: Finance, Business, Nonfiction, Economics, Money, Personal Finance

320 pages, Hardcover

Published October 27, 2020

About the author

Terence (Terry) Smith is the founder and chief executive of Fundsmith and a notable British fund manager. He was formerly the chief executive of Tullett Prebon and Collins Stewart. He is a bestselling author and a regular media commentator on investment issues. He has been referred to as "the English Warren Buffett" for his style of growth investing, which involves buying and holding shares in a relatively small number of established companies.

Reviews

[Fried Meulders · Rating 3 out of 5]

I like Terry Smith & the Fundsmith investing philosophy. But I have mixed feelings about this book. I don't regret buying & reading it, but don't think I would recommend to book to everyone.

If it's not clear: this book is simply a collection of what Terry Smith has written over the past 10 years. A lot of it you can find online for free. But for the fans it might be nice to have it all collected in a nice hardcover book.

Terry Smith has been consistent regarding his investment style and communication. This also means when everything's collected in one spot, there's a lot of repetition.

This becomes most obvious when first you read an article that was published in the newspaper immediately followed by an annual letter that repeats the lesson from the article you just read.

Instead of having a chronological collection, it could have been ordered around a specific topic without all the repetition (like "The Essays of Warren Buffett" does for his writings).

That said, I was already a fan and I'm happy to have everything collected in a nice book.

[Ugh · Rating 5 out of 5]

I'd give this book 4 stars judging it on its merits as a book, but 5 judging it on how likely I think it is to improve your investing outcomes.

Taking those two aspects in reverse:

Smith's record as an investment manager speaks for itself: he's consistently outperformed the MSCI world index over the past 10 years (and the FTSE 100 has massively lagged the World, btw). He's also been way up there, if not top, in the ranking of funds like his own.

Perhaps this could have been due to luck on his part - perhaps there's some selective hindsight in reading a book by the best performer of the past 10 years, bearing in mind that old illustration of chance (I think it's in Benjamin Graham as well as elsewhere) about how if you get a load of people to flip a coin and then find the last person standing who (by chance) flipped nothing but heads every time, that doesn't make that person any better at flipping heads than everybody else - it's just selective hindsight. But Smith has not only delivered truly outstanding returns for 10 years straight, he's also convincing in setting out how he's done it.

The defining features of Smith's investing style and the main subjects of this book are his focus on "quality" and his disdain for, in particular, "value investing" (in companies with a low price to earnings ratio or price to asset ratio) but also the false dichotomy between "value" and "growth" investing in most media coverage of investing.

As you've probably read elsewhere if you're considering reading this book, the danger with value investing is that there are generally good reasons why companies are "cheap" in the sense of having low price to earnings or asset ratios: they may well be "value traps" whose share price never rises again or rises only after any investor has foregone a lot of gains through the opportunity cost of not being invested elsewhere. Such companies aren't in fact "cheap": they're expensive considering their poor return.

But growth investing isn't all fine either, if it encompasses investing detached from the fundamentals of the companies (such as "momentum" investing in anything with a rising share price), or takes no account AT ALL of the price to earnings and asset ratios, etc.

"Quality" companies, for Smith, are those that achieve high returns on their investments and have a good shot at growing their revenue and profit. This is a subset of "growth" investing - underpinned by a focus on the financials, the management, and the opportunities. These companies have to be available at a reasonable price to be worth investing in - although Smith sets out why a price-to-earnings ratio of say 20-25 in a quality company is likely to offer much better returns over the long run than a P/E of say 10 in a weaker company.

Which, again, you might already have picked up from investing media. What Smith does here much more than anyone else I've read over the past year or so of being interested in this stuff is focus very strongly on how much a company gets back from every dollar or pound it invests - its return on capital employed. He's much more focused on this than the P/E ratio.

That is, revenue growth isn't necessarily great if it comes at the expense of shrinking returns on capital employed. If a company is growing its revenue and profit, but getting less revenue/profit for each dollar invested (e.g. by acquiring other companies with weaker returns on capital than it has), it probably can't keep growing for very long, and anyway will offer worse returns than a company that can reinvest at high returns.

While I was familiar with the concept that it's fine for a growing company to reinvest earnings rather than pay a dividend, what was new to me was Smith's explanation of WHY this is better, and how much better it is.

Partly it's that dividends might be subject to taxes when either received or reinvested. More interestingly and I think importantly, Smith says, it's because when a company invests a dollar of its earnings in growing, it does so at the "book value" of the company. Whereas when you buy a company's stock, obviously you're paying whatever amount ON TOP of book value the market currently thinks the stock is worth. (Partly for this reason, he's generally not a fan of share buybacks - he thinks they're only worth doing if the company cannot do anything better with its money. But if it can't, maybe you shouldn't be invested in it.)

Put it this way: if a company is trading at 1 dollar a share in 2019 and can make 20 cents on every dollar it uses in 2019, but by 2020 it's trading for 2 dollars a share because the market has spotted what a great company it is, wouldn't you rather it kept that 20 cents and made another 20% on it in 2020, rather than giving it to you so you can reinvest it in the company at twice the price that cost you a year earlier? This cutting through the above-"book value" price of the shares also applies even if the share price hasn't increased. Essentially: you have to pay the above-book price when you first invest, but every reinvestment the company does after that is using your investment (well, your share of the company's capital) at book value. Even better, that translates into above-book froth/gains that you get to capture if you ever decide to sell. (Look, he explains it better than I do, although I did still somewhat have to take his word for it.)

So that's the five stars for the strategy.

Smith also has a clear, no-bullshit outlook and writing style. Why the book gets only four stars from me instead of five is that it's quite repetitive. It's a collection of Smith's annual reports to investors in his fund, alongside the newspaper articles he has written for the Financial Times etc over the past 10 years or so - the period of his fund's duration. Two of the articles were almost word-for-word identical; some paragraphs and quotes were reused multiple times in various articles; and the parts of the annual reports explaining the fund's costs were repeated in report after report. I see no reason why these repetitions couldn't have been edited out, unless the thinking was that people might read only certain chapters. But the bigger chunks of repetition in the reports are easy to skip, so it's not much of a hassle - and far outweighed by the book's qualities.

[Chris Choi · Rating 5 out of 5]

i love it thanks

[Adam Tidd · Rating 5 out of 5]

First off and worth a mention the book itself is beautifully presented. It is essentially a chronological anthology of investment essays from the author rather than a book written with a determined structure, as a result sometimes themes and ideas of the book are repeated but there is enough original content and ideas that the book remains an interesting read despite this. The book is very much written how the author speaks and you can almost hear his voice as you're reading through it, his blunt and sarcastic humour is definitely clear in these pages and it is refreshing read compared to some of the investment literature written by the academics. The author certainly has an air of self confidence, some might say smugness probably born by the investment success he has had so far, whether this will continue remains to be seen but I very much buy into the rational for his investment philosophy and as long as he remains commited to it should see continued success in the future even if potentially to a lesser degree. The author does have enough humility to concede however that index funds might still be the best solution for most investors, this is to be commended and shows integrity given that his livelihood is based on the premise that he can outperform the market. Overall it is a really interesting read, well written and with some challenging ideas especially to the very "value" orientated investment philosophies out there. Would recommend especially to those that want to go down an active stock picking route with their investments or are interested in the investment process of active management.

[Debjeet Das · Rating 3 out of 5]

This book focus on some basic princinciples like
1 focus on quality stock, hold for long time and be inactive as much as possible
2 Focus on Return on capital employed i.e. how much company earning profit wrt money they are investing. This is very powerful metric.
3 focuses on the company ability to re-invest the surplus money in existing business. If company creates lots of opportunities to reinvest in business, it will create huge wealth fo shareholder.
4 Dont ever thing of timing the market.Market always work in second order effect. You will always under-perform.
5 Don't sell because the price is down, sell only when there is deterioration in fundamentals like financial performance, management incompetence, product/service obsolescence, industry downturns etc.
5Good companies can only be found at fair price when there is temporary glitch affecting the business, otherwise, it keeps increasing; so instead of waiting for the right value, keep investing in quality stock, you will get a decent return over a period of time.

One thing bit weird in the book there is lots of repetition, which could be avoidable through proper editing.

[John · Rating 5 out of 5]

Investing for Growth is an anthology of Terry Smith's investment writings over the past ten years as the lead PM at Fundsmith. Not everyone will like this book's format (around 75 shareholders' letters/articles), but I find Smith's writing style very direct and insightful. In Investing for Growth, Smith artfully espouses his investment philosophy, which essentially entails buying great companies, not overpaying for them, then doing nothing after that (i.e., letting the businesses compound value over time). But this book is much more than that - Smith tells numerous stories supporting these points and provides many investment case studies that bring home these principles. I particularly love how Smith focuses on controlling the controllable, buying high return on capital companies, and NOT overpaying for these shares. I also really enjoyed how he casually mocks forecasts and those in the media who focus extensively on macro events that are practically impossible to predict and/or know-how to position to benefit from. In sum, anyone interested in understanding the investing principles behind the long-term outperformance of Fundsmith (or any truly exceptional fund manager) will enjoy this book. I've also included below a handful of my favorites quotes from this book.

"Those who wish to rely upon forecasts would still labour under the problem that markets are second-order systems. In order for a forecast to be useful it not only has to be accurate (and that includes the timing) but you also need to know what the market expects in order to have a chance to predict how it will react to events and benefit from it."

"A good company is one that regularly makes a high return in cash terms on capital employed, and can reinvest at least part of that cash flow in order to grow its business and compound the value of your investment. Bad companies do not do this. They make inadequate returns on the capital they employ. You may think you should invest in these poor companies as they are going to improve because the management will change, or they will be taken over, or their results will pick up with the economic or business cycle. But each day you wait for such events, these companies destroy a little bit more value. Good companies do the opposite. With a good company, time is on your side."

"We are often asked what our view is of the economic outlook for the world and how our fund is positioned to take advantage of, or cope with, those conditions. Our investment approach is thankfully not based upon our view of the global economic outlook. I say thankfully because we do not profess any great expertise in this area, and we are not particularly optimistic. This is in contrast to many others in the industry who certainly profess to such expertise, often it seems without any obvious justification. We are at least one step ahead of most of them in recognising that we do not know what will happen."

"If you invest for the long term in companies which can deliver high returns on capital, and which invest at least a significant portion of the cash flows they generate to earn similarly high returns, over time that has far more impact on the performance of the shares than the price you pay for them. Yet I have been asked far more frequently whether a share, a strategy or a fund is cheap or expensive than I am asked about what returns the companies involved deliver and whether they are good companies which create value or not."

[Ronny Blankenberg · Rating 4 out of 5]

I really enjoyed this book, which is a collection of Terry Smith’s writings up until mid-2020 — including his annual letters and Financial Times articles.

In my opinion, Smith explains the investment philosophy followed by himself, Munger, Buffett, and others in clearer, more down-to-earth terms than even Buffett has managed up to this point. Add to that the fact that his writing is succinct — and at times hilariously, laugh-out-loud funny — and you’ve got a highly engaging read.

The biggest takeaway from the book is the soundness of the philosophy: buying and holding shares in quality companies for the long run. Smith lays out the rationale behind this approach and alludes to why it is so difficult to follow in practice.

The book’s main drawback is the degree of repetition. Several themes reoccur, and some sections are nearly word-for-word duplicates of other writings also included. However, this is a minor issue compared to the overall quality of the content. In fact, the repetition can even be seen as a helpful pedagogical tool that reinforces key ideas.

[Liam Polkinghorne · Rating 4 out of 5]

Compilation of writings from Terry Smith. Quality investing style, summarised as (1) buy good companies, (2) don’t overpay, (3) do nothing. Quality effectively means high return on capital, high margins, good growth opportunities, good cash conversion, low debt. Selling products that are small ticket, repeat, relatively predictable everyday events.
Invests in bond proxies. Shorthand to describe equities such as consumer staples and utilities with safe, predictable returns, but have higher yields than the bond markets (and crucially yields which can grow over time). We don’t seek to predict who will win, but rather bet on a company that has already won. Buffett in his 1979 letter described ROC as the primary test of performance in managing a company. “It has often puzzled me why such a clear statement from such a successful investor is so widely ignored.”

Obtain excitement not from the delusion that we have discovered an investment that no other investors have found or from a long shot winning, but from delivering predictable, superior investment returns.
Don’t try to time markets. It’s too difficult. Falls will occur at some point. You have to possess the emotional and financial stability to stick to this stance when it strikes. It is hard enough to have the strength of conviction to convince yourself that markets are too high and sell when the background is looking rosy and everyone else is bullish. But it requires an extraordinarily flexible psyche to be able to complete the required volte-face at the bottom and buy the stock, market or fund after your predictions have come true, it’s prospects look bleak and the price has fallen. Missing the ten best days decimates your results. There are only two types of investors: those who know they can’t make money from marketing timing, and those who don’t know they can’t.
Low turnover, minimise fees, would sell on valuation grounds (but often regret it). Long term holders: at 10 years, 10 of the initial holdings were still in the portfolio.
Look at free cash flow yield as a valuation metric.
Avoid too much diversification. 20-30 is sufficient. The more stocks you own, the more you are likely to have to compromise on quality. The more stocks you own, the less you know about each one.
Speculating on macro is useless. No one knows. Spend little time considering matters which I can neither predict nor control and focus instead on the things you can affect. Whatever the outlook, it won’t change our methodology of investment.
So often we are defeated not by our competition or the difficulty of the task but by our own psyche.
Time is the friend of a wonderful business. Buying a good company that can reinvest at a high rate of return on capital will dominate returns compared to buying at a low PE and selling at a much higher PE over a long period. Can overpay significantly for the best businesses to match their returns over the long term.
Use compounding to your advantage.
Need to have the fortitude to sit on your hands during periods of high interest rates and poor performance.
Was told for 6+ years his quality stocks were overvalued and due for a decline. It eventually came, but between the time of the initial comments and the decline, the fund returned >180%.
Why quality shares outperform like this when EMH postulates that only more risk can drive superior returns - partly due to investor psychology for bond proxies. The near certain bit just before 90% is the world of low beta/high quality stocks. They have bond-like returns and low share price volatility, but they are still stocks with uncertainty about share price and dividend payments.
Value investing is tough - while you are waiting for the low valuation to be rectified by the market the intrinsic value is not growing, and then you need to sell and find another idea.
When we ask our companies that have performed well over the long term, what will be the 3 key drivers of your future performance, how many will say FX?
Don’t invest in equities for dividend income. If you need income, maximise total return and sell the capital you need for income.
Patience: WB quote: the stock market is designed to transfer money from the active to the patient.
We have often found that the only time you can hope to buy stock in great businesses at a cheap valuation when they have a glitch.
Most individual stocks will underperform cash. Large positive returns from a few stocks offset the modest or negative returns from the vast majority of stocks. Just five companies out of the universe of 25,967 in the study account for 10% of the total wealth creation over 90 years, and just over 4% of the companies account for all of the wealth created.
Would prefer that the share price performance of our stocks tracked the underlying free cash flow performance of the companies, since performance from increasing valuations is a finite game which also tends to even put over long periods of time, and we intend to run the portfolio for a long period of time.
Over 2000-2010 the best performing fund returned 18% pa. Over the same period, the average investor in the fund lost 11% pa. Investors show an unerring ability to buy into the fund at its peak in valuation and sell out at its troughs.
Tesco’s EPS consistently grew, but it’s ROC was falling. Taking on more debt to fund lower returning projects.
EPS doesn’t take account of capital employed in the business or the returns made on it. Had an investor tell him he wouldn’t invest at the start of the fund because the market was too high. Then said after years of outperformance that it was only due to the fund starting at an opportune time.

[Daniel Milford · Rating 4 out of 5]

Mye bra her, Terry, men la meg gi deg litt konstruktiv kritikk. For det første er du innledningsvis altfor arrogant i stilen. Hvem gidder lese ferdig en bok hvor forfatteren fremstår som en selvgod bedreviter fra første side? Jeg. Jeg gidder visst det. Og du bedrer deg utover. Kanskje fordi du blir eldre og visere med kapitlene, som jo er skrevet over nesten et tiår. Apropos:

For det andre: Boken din er jo ikke en bok, men en serie artikler du har skrevet i ulike aviser og diverse nyhetsbrev, presentert kronologisk. Det gjør at du gjentar deg mye, gjerne i tilstøtende kapitler. Det gjør at produktet virker uferdig og uredigert (sistnevnte stemmer vel). Her kan du lære av Howard Marks, som også har gitt ut et par bøker basert på sine nyhetsbrev, men som har tatt seg bryet med å strukturere og skrive om og heller sitere seg selv innimellom. Den ene fordelen med dine stadige gjentagelser er riktignok stor: jeg får med meg det du prøver å formidle. Og det er som sagt mye bra.

[Jim · Rating 5 out of 5]

A great investing book from someone who has consistently crushed the market. My notes, to the extent they are useful at all, are below:

* “We would all do well to remember that we are defined by those with whom we compete - be they boxer, banker, or politician.”
* “When a company has superior returns on capital employed, and a source of growth which enables it to reinvest a substantial portion of those returns, the result is compound growth in its value and share price over time.”

* In 2010 the average of the 22 companies owned had a founding year of 1883. They had a 7% trailing FCF, higher than the market (quantitatively), while also being higher quality (subjectively). Winning combination.
* “What made Joe Frazier so great was his link to the men he fought — George Foreman and Muhammad Ali — and the significance their bouts had. We would all do well to remember that we are defined by those with whom we compete - be they boxer, banker, or politician.”
* “We do not own any bank stock and we will never do so.”
* On buying back Dominos after selling the prior year “So I did what you should always do when you it wrong (but which all of us rarely manage to): a) admit this (most importantly to yourself), b) reverse the decision.”
* “Much of the time you get better returns from investing in predictable high-quality companies than in smaller, riskier, more obscure company shares. But there appears to be a human desire to indulge in excitement and back the 100-1 shot rather than the favourite”
* based on a very specific timeframe: https://www.fundsmith.co.uk/media/haf...
* “Buy shares in a business which can be run by an idiot”
* “Never buy shares in companies which require a genius or a charismatic chief executive to make them work. Sooner or later that individual will no longer be there, and what then?”
* “Never invest in poor-quality companies”
* “You may think you should invest in these poor companies as they are going to improve because the management will change, or they will be taken over, or their results will pick up with the economic or business cycle. But each day you wait for such events, these companies destroy a little bit more value.”
* “In his 1979 annual letter to Berkshire Hathaway shareholders, Warren Buffett described return on capital as the primary test of performance in managing a company. It has often puzzled me why such a clear statement from such a successful investor is so widely ignored.”
* Terry uses ROCE heavily in his investment search.
* “I suggest you consider how you might have reacted if someone suggested you invest in Coca-Cola or Colgate at, say, twice the market PE in 1979. In rejecting that idea, you would have missed the chance to make twice as much money as an investment in the market indices over that period.”
* Don’t write puts at the top of a bull market, or else you are writing a “precipice bond”. Collecting a small yield for a potentially massive implosion.
* “We keep track of the ‘underlying’ (excluding acquisitions, currency effects and exceptional items) revenue growth rate at all the companies in our investable universe (currently 64 stocks)”
* In 2014 he says it was slowing, which made him skeptical of the strength of the current recovery.
* Fundsmith evaluates investments based on FCF Yield (at least 1% higher than inflation, a proxy for a high quality govt bond sold to a third party) and ROCE.
* “The return on capital of the companies in our portfolio averages 34%. This compares with an average of about 19% for the non-financial stocks in both the S&P 500 and the FTSE 100.”
* “They also deliver more of their earnings in cash than the market as a whole, typically 90-100%. And we like cash - it’s the main way of paying bills, and earnings delivered in cash are of higher quality than those which aren’t.”
* ”I’ve often been asked why I won’t invest in bank shares given that I was once the top-rated banking analyst in the City. The answer is that having an understanding of banks would make anyone more wary of investing in them.”
* He also doesn’t invest in retailers, although he did invest in Costco
* “One of my basic tenets is never invest in a business which requires leverage or borrowing to make an adequate return on equity.”
* ”Banks rely on leverage to a greater extent than any other business. A 5% equity to assets ratio for a bank is leverage of 19 in debt to 1 of equity.”
* IBM and Tesco were both losers for Buffett, and were selected despite poor returns on capital.
* Terry points out that Buffett himself said to look at ROC, not earnings per share growth, to value a company and measure the competence of management.
* “In order to minimize the cost for dealing and avoid the mistakes which seem to result when we sell stakes in good businesses our mantra is: ‘Don’t just do something, sit there.’”
* “If you own real estate, you will receive rental income but none of it will be reinvested in property for you.”
* In 2012 AstraZeneca stopped amortizing intangibles, despite Pharma companies having most of their assets tied up in intangibles (drug patents with fixed lives). Unsurprisingly, earnings went up.
* “While this accounting treatment would not fool a decent analyst, who in any event would be looking at cash flows rather than earnings, it certainly seems to have fooled some people.”
* Robert Haugen and Nardin Baker published “Low Risk Stocks Outperform within All Observable Markets of the World” in 2012:
* “The fact that low-risk stocks have higher expected returns is a remarkable anomaly in the field of finance. It is remarkable because it is persistent - existing now and as far back in time as we can see. It extends to all equity markets in the world. And finally, it is remarkable because it contradicts the very core of finance: that risk bearing be expected to produce a reward.”
* The 1986 BHB paper on “Determinants of Portfolio Performance” is “often incorrectly cited as concluding that asset allocation was responsible for 91.5% of the portfolios’ returns.”
* “What it concluded was that asset allocation was responsible for 91.5% of the variability in returns - not the returns themselves.”
* “The median stock entering the market since 1977 did not just underperform Treasuries but had a negative return.”
* “Stocks in aggregate outperform bonds, but most stocks do not and positive returns are concentrated in very few stocks. Most active investors are doomed to underperform not only the equity indices but also bonds.”
* “We have a simple three-step investment strategy:

1. buy good companies
2. don’t overpay
3. do nothing.”

* Cash conversion from Terry is calculated as FCF per share / EPS
* Cash Conversion Rate is typically calculated as OCF / EBITDA

[JC · Rating 3 out of 5]

I truly enjoy Terry Smith’s wit and humour along with his “keep it simple” investing style. Indeed, my own approach is similar in many ways. But this “book”, which is really a collection of letters and articles, is poorly edited and highly repetitive. For example, there is a quote from Charlie Munger which I believe appears no less than 7 times. The calculations and discussions on fees, while interesting the first time, should really be summarized. To mark the 15th year of his fund, I would suggest that Mr. Smith may perhaps like to delve more into his companies and how he approaches the investment process.

[Shashank · Rating 5 out of 5]

Buy good companies, don't overpay and do nothing.

These are the key tenets of Fundsmith's investment strategy. The book covers the writing of CIO Terry Smith; both his annual letters and other musings. In my mind, Terry is right up there with Mr. Warren Buffett in his thinking, use of anecdotes and clarity of thought.

I was left zapped by his understanding of ROCE, compounding on BVPS via re-investment and the look through analysis. I feel that as an investment professional this book carries a lot of wisdom for everyone in this field.

[N · Rating 3 out of 5]

This is a collection of essays written for the FT. If you've seen his videos on youtube there's not much new (must watch the Youtube clips!).

Buy Great Companies, Don't Overpay, and do Nothing [emphasis on little churn or transaction costs].

pg 219 "will only hold a maximum of 30 companies in consumer staples, consumer discretionary, health care, and technology."

pg 7 "Own companies which produce high cash returns on capital and distribute part of those returns as dividends and re-invest the remainder at similar rates of return." pg 74 "only invest in companies which make high returns on capital employed; convert most or all of their profits into cash; have high profit margins and which have proved resilient to economic cycles over many decade." pg 75 "we dont look at PEs, we prefer cash flows." we can pay massive premiums and still come out better if these companies can grow. (XIX chart on PE you could pay to earn 7% CAGR).

pg 48 He tries to imagine what government bond yields ought to be without the distortion of central bank policy (for example 1% above the rate of inflation) as a benchmark for thinking about what a FCF yield should be. pg 87 1. Only buy companies when FCF yield exceeds long term government bond yields (appropriately adjusted for inflation)

pg 61 market timing: "missing the best 10 days reduces returns from 12.1% to 6.9% cagr and without the best 30 the returns are negative."

pg 70 "reinvested dividend income accounted for 95% of compounded long term returns in the s&p"

pg 102 "Revenue growth (ex-acquisitions) is a higher quality source of value creation than share buybacks or cost control."

pg 118 banks are impossible to analyze since they can engage in OTC transactions that alter their risks in a way that cannot be known. so preference for retail banks.

pg 145 "analysts seem to be interested in financial engineering. they do not seem to realise that without a business sellign something which customers want, no amount of financial wizardry will create lasting value."

pg 237-8 only 42.6% of stocks exceeded the return of treasury bills. five companies account for 10% of all returns and 4% of companies for the entirety of returns.

[Kyle · Rating 3 out of 5]

The book is a collection of Terry Smith’s writings from
Various sources and his annual meetings. I read this from the perspective of an investor looking to learn lessons in being a better investor.

I don’t think there was also to Fenway information in the book and it was very repetitive at times, however he did a pretty good job at explaining the importance of his three rules.
1. Buy good companies
2. Don’t overpay
3. Do nothing

I think this is a fine approach and his record over the last decade clearly show the strategy has worked well in this time period. My biggest takeaway from this book was the importance he places on good companies. I thoroughly enjoyed his view on “look through” earnings, which Buffett has espoused many, many times.

The importance he places on ROCE (returns on capital
employed) was very interesting to me. Smith constantly pounds into you the importance of this number being the true KPI for performance and not EPS growth, with multiple examples.

I’ll definitely be following along with his annual letters and be on the lookout for good prices on some of the great companies he holds for potential additions to my portfolio.

[Joel Gray · Rating 2 out of 5]

PEOPLE WILL PAY MORE FOR 10% OF CERTAINTY IF IT GOES FROM 0% TO 10% OR 90% TO 100%, THAN FROM 50% TO 60%. THIS IS WHY INVESTORS WILL BUY A BOND WHICH YIELDS LESS THAN AN EQUITY IN THE SAME (BORING) COMPANY, AND ALSO WHY PUNT SPECULATIVE STOCKS. FUNDSMITH TAKES ADVANTAGE OF THIS BUY INVESTING IN THE NEAR-CERTAIN (JUST BELOW 90%) WORLD OF LOW BETA/HIGH QUALITY STOCKS.

In the first 10 years to 8/20 Fundsmith did 18% v 12%.

Performance fees dont work as they extract too much of the return and encourage risky behaviour. The only way to focus your FM without gifting him most of the returns is to ensure they invest a major portion of their own worth alongside you in the fund and on exactly the same terms.

Fundsmith buys great businesses at reasonable prices which are held of the LT - bond proxies.

Most investors dont like the lonely feeling of being contrarian.

In BH's 1979 letter WB described ROC as the primary test of performance in managing a company. Its often surprised me why such a clear statement from such a successful investor is so widely ignored.

4% of companies accounted for all the wealth created from 26k listed companies between 1926-2016

[Tim Hughes · Rating 5 out of 5]

Every Christmas and New Year I get a list of books that break with my normal diet of sales, marketing and leadership books. Merryn Somerset Webb, (@merrynSW on Twitter) who writes in the Financial Times (FT) always provides an excellent set of book recommendations, usually in the weeks before Christmas. Certainly in time for Amazon to deliver.

One of the books she recommended this year was Terry Smith “investing for growth”. This is a collection of his blogs for the FT as well as the letters he sends to his shareholders as CEO of “Fundsmith”. If you like a direct, take no prisoners writing style and you are interested in investment, then this is the book for you. Terry is a contrarian and provides a narrative will challenges the normal views we read today. So if you like swimming upstream, than floating downstream and want to understand a bit about investing it’s worth a read. The sort about him calling IBM to point out their annual accounts are wrong by $1.5 billion is just a taster.

[Terry · Rating 4 out of 5]

Always enjoy reading successful portfolio managers. This book is a collection of annual letters and FT columns that the author wrote over the years, so it's less structured.

The idea is clear. Smith invests in high quality companies, not overpaying for them and then do nothing. He has explained why this strategy would work from an empirical point of view and used real time portfolio track record to back it up. He is sarcastic about other forms of investing, such as market timing, macro prediction and high turnover strategies.

My only issue is Smith's unwillingness to sell on valuation. He seems to believe it's always a bad idea to sell a high quality company, even when it's overvalued.

He discussed his criteria for quality is ROCE, but didn't expand on examples. I think the book would be more interesting to read with more company examples in details (he did mention a few, such as MSFT, DPZ).

[Louis · Rating 4 out of 5]

Smith’s book is easy to follow as his philosophy is clear. Fundsmith has demonstrably followed a discipline of buying high quality companies - as supported by their sustained high ROIC’s.

My major issue with the book is that he doesn’t delve into the qualitative elements. That is: what does quality actually look like?

For example, in the 2019 Annual Letter he details important features of a business: “product innovation and R&D, strong brands, control of distribution, market share, customer relationships, installed bases of equipment or software, management, successful capital expenditure and acquisitions”. In my opinion, he falls short in elucidating what these elements look like within his portfolio companies.

[AnhDuc · Rating 4 out of 5]

Good book but it needs some editing. It is just a collection of blogs that Terry did in the last 10 years, so there are some chapters with duplicating content.

A few things I like/learn about his strategy/thinking:
- Over the long term, it is hard for a stock to earn a much better return than the business which underlies it earns. If a business earns 10% on capital over 40 years and you hold it 40 years, it is hard for you to earn more than that. That's why it's better to think about good companies' earning potential instead of sell/buy price.
- The strategy of Fundsmith is not to find winners, but to find some companies that have already won, and then wait till there is an odd against them winning

[Florian · Rating 3 out of 5]

My guilty pleasure

I cannot help it, I just love reading these business, finance, and/or investing books. Accordingly I also couldn’t resist reading this one. To my surprise, though, I feel like I actually learned a thing or two from this book (Terry Smith really drives home the point about good/quality companies — their fundamentals will constantly improve even if their valuation varies in the short term).

Still a few remarks:

- this is not a monograph, but simply a collection of articles and annual letters to shareholders
- Terry Smith repeats himself quite often across the different pieces of writing included in this book
- the writing can be quite good, but it doesn’t always hit the mark

[Phil · Rating 5 out of 5]

Terry Smith’s writings over the past decade represent a refreshingly sober take on the importance of a focus on quality above all else, but not to the exclusion of all else. Following the uncommon sense of buying only great businesses (those obviously great based on fundamental measures), not overpaying for them, and then “doing nothing”, Fundsmith managed to achieve high-teens annualized returns. Some interesting ideas on reporting portfolio-level look thru metrics compared against those for index benchmarks, as well as flaws in ETFs, the obsession of the financial industry with market timing and macro predicting, and the follies of “Busy Fool Syndrome”. Pleasant read, good book to have as a reference.

[Trevor Tsui · Rating 2 out of 5]

Not sure why this book is so highly rated, perhaps most reading it are new to investing books, in which case the book is ok.

As others have described, it’s simply a collection of shareholder letters and other ramblings, which might otherwise be described as annoying complaints.

The content is extremely repetitive and lacks any real insight. I was hoping for more substantive debate / insights into their portfolio selection choices.

He also often boasts about how good his performance is, and in the early years makes comparisons with mistakes made by Buffett (not that Buffett can’t make mistakes himself).

[Tab Williams · Rating 5 out of 5]

A collection of all Terry Smith's writings since he launched Fundsmith (including his annual letters). You really get a sense of his investing style: invest in good businesses, don't overpay, and do nothing.

Really enjoy how he talked about evaluating a business and how he stressed ROCE above all else. That said, he gets "ranty" at times and I disagree with his nomenclature argument as it is a bit harsh - though I do understand the sentiment.

It is surprising though - he trades in and out of stocks more than I would think, but overall his performance is excellent.

[Mark · Rating 3 out of 5]

I like Terry Smith's investing approach and writing style. His style is simple, logical, no-nonsense, all with an entertainingly sardonic tongue. That said, this anthology was unnecessary. The book is extremely repetitive. The shareholder letters, while generally an insightful look into the past decade of investing trends, were mostly formulaic. His in-between writings were too short and snippy to be really useful. Smith also has a pedantic side which can be annoying.

If you're already a Smith devotee you don't need to read this. His simple but powerful message is probably already clear to you.

[Mihir Damniwala · Rating 4 out of 5]

These are the letters that Terry Smith wrote to the investors who had given the firm the money to manage. It is evident on how he touches upon the topics of concern for him as a part of the investment journey and then too performing (actually beating) the benchmark for long period of compounded time for getting good returns for investors. The letters are well meaning-ed and good to read if you are into portfolio management or to understand how fund managers can communicate with their involved investors.

[Andréas Malmstedt · Rating 4 out of 5]

As a seasoned investor, I've seen countless books promising market-beating returns. "Investing for Growth" stands out for its clarity and practicality. It's not about chasing fleeting trends, but about building a portfolio of enduring, high-quality companies. The author's focus on fundamental analysis and long-term perspective resonates deeply with my own investment philosophy. This isn't a get-rich-quick scheme; it's a sound, actionable guide for building sustainable wealth. Highly recommended for both novice and experienced investors looking to refine their approach.

[Joel-Oskar · Rating 2 out of 5]

Collection of articles

This book is really a collection of Terry’s articles published on FT and other magazines, as well as his investor letters. This means many ponderings will be repeated thorough various chapters in the book almost word to word. Read it if you are keen to learn his philosophy or are curious of Fundsmith through other avenues. Otherwise I’d consider other books on investing.

[Nishant Jain · Rating 5 out of 5]

Great book to understand the market and what to look in identifying high quality business.
- ROCE
- Gross Margin
- Operating Margin
- Cash Conversion
- Leverage
- Quality of Management and most importantly how to identify the decision of management in doing X over Y.

Overall great book to understand why one should think about picking business -
- Invest in high quality business
- Don’t overpay.
- Do nothing.

All of these are easy to write and say and very very difficult to do!

[Ben Christy · Rating 2 out of 5]

I like Terry Smith and think there's a huge amount to learn from him. My issue with this book is that it's simply a collection of letters to shareholders and short newspaper columns. It isnt organised by any theme or message and the content is hugely repetitive. If you want to learn about Terry Smith's investing approach simply watch the many interviews he's done, available on YouTube. You'll learn more than this entire book in 2 hours.

[Noori · Rating 4 out of 5]

Great consolidation of numerous writings from Terry Smith, including Fundsmith annual letters. Somewhat repetitive, given the nature of the book, but a lot of Terry’s points are worth repeating. A straight talking guide to what matters in investment, what to focus on, and what to not waste any time on.