Terry Smith

Misconception: Terry Smith just runs a quality growth fund.

Correction. He runs a quality-quantity framework with explicit valuation discipline. The Fundsmith annual letters repeatedly emphasise the do-not-overpay rule, and the fund has passed on many high-quality businesses whose multiples did not meet the valuation threshold. Framing Smith as pure growth misses the second of his three rules.

Misconception: Smith's framework is just Buffett with a British accent.

Correction. The frameworks share the quality emphasis and the long holding period, but the specific quantitative gates differ. Smith places more weight on cash-conversion ratio, organic-versus-acquisition growth, and capital intensity than Buffett's letters discuss explicitly. Buffett's framework places more weight on management quality and brand-narrative durability. The frameworks are cousins, not identical twins.

Misconception: Fundsmith owns only US large-caps.

Correction. The portfolio is global, with roughly 60 to 70 percent typical US weight reflecting the global distribution of compounder-quality businesses rather than a US bias per se. European holdings include L'Oreal, Diageo (until trimmed), Stryker, and others. UK holdings have been intentionally limited because most UK-listed large-caps fail the framework's ROOCE and growth tests. Emerging-market exposure has been minimal but selectively present.

Misconception: Fundsmith's performance was a 2010s-bull-market accident.

Correction. The fund's 2010 to 2020 returns benefited from generally rising equity markets, but the outperformance versus the MSCI World over the same window (roughly 5 percentage points annualised in GBP) cannot be explained by beta alone. The 2022 drawdown (the fund fell more than the index for the first time) tested the framework and led to a 2023 annual letter discussing what had and had not worked; the fund recovered in 2023 to 2024 without changing the underlying methodology.

Misconception: Smith never sells.

Correction. The annual turnover target is around 10 percent, meaning roughly two to three position changes per year in a thirty-name portfolio. Holdings have been exited when the underlying business deteriorated (Philip Morris International was eventually sold), when the valuation multiple exceeded the prospective return (selective exits during the 2020 to 2021 multiple expansion), or when management quality changed. Inactivity is the default, not an absolute commitment.

Misconception: Accounting for Growth is just a historical curiosity.

Correction. The specific UK accounting practices it critiqued in 1992 have largely been reformed by subsequent IFRS standards, but the underlying analytical framework (test reported earnings against cash flow, scrutinise capitalised expenses, watch for off-balance-sheet financing) is still the cornerstone of modern quality-of-earnings work. The book is required reading in many UK and European value-investing curricula three decades after publication.

Who is Terry Smith?

Terry Smith is the founder and CEO of Fundsmith LLP, a London-based asset manager he launched in 2010. The Fundsmith Equity Fund grew to over 25 billion pounds in assets under management within a decade. Smith is the author of Accounting for Growth (1992) and Investing for Growth (2020) and is one of the most-followed voices in modern UK value investing.

What is Terry Smith's investment philosophy?

Three rules: buy good companies, do not overpay, do nothing. Operationally this means owning a concentrated portfolio of 25 to 35 global businesses with sustained returns on operating capital above 25 percent, organic growth, low capital intensity, and excellent cash conversion. Annual portfolio turnover is targeted around 10 percent.

How has Fundsmith performed?

From its 2010 launch through 2022, the Fundsmith Equity Fund compounded at roughly 14 percent annually in GBP, against the MSCI World's roughly 9 percent over the same window. The fund had its first material drawdown in 2022 (falling more than the index) and recovered in 2023 to 2024 without changing the underlying methodology. Recent performance is published in the fund's monthly factsheets at fundsmith.co.uk.

What does Fundsmith own?

The portfolio is concentrated in roughly 25 to 35 global compounder-quality businesses, weighted toward consumer brands (L'Oreal, PepsiCo, Estee Lauder), software (Microsoft), payments (Visa), medical devices (Stryker), and selected specialty industrials and consumer healthcare names. The full top-ten holdings are disclosed monthly; the fact sheet on fundsmith.co.uk is the authoritative source.

What is Accounting for Growth?

Smith's 1992 book exposing accounting practices used by major UK companies to inflate reported earnings during the late 1980s. The book embarrassed several large issuers and ultimately cost Smith his head-of-research position at UBS Phillips & Drew. It is one of the most influential accounting-forensics books of the 1990s and a foundational text on quality-of-earnings analysis.

What is the difference between Terry Smith and Warren Buffett?

Both apply quality-quantity frameworks with long holding periods. Smith places more explicit emphasis on cash conversion ratios, organic-versus-acquisition growth, and capital intensity than Buffett's letters discuss. Buffett places more emphasis on management quality and brand narrative. Smith excludes financial-services businesses entirely; Buffett holds them. The frameworks are closely related but operationally distinct.

How does invest-like score the Smith framework?

invest-like applies a Smith-Fit Score with pillars for sustained return on operating capital (ROOCE), organic growth share, capital intensity, cash conversion, and valuation discipline. Stocks are graded A+ through D with reasoning per pillar. Banks, insurers, and other regulated-leverage businesses are excluded by deal-breaker following Smith's own portfolio policy. The live cohort is at /fit/smith/ and the methodology at /methodology/.

How old is Terry Smith?

Smith was born on 8 May 1953 in Stratford, East London. As of 2026 he is in his early seventies and continues to serve as CEO and lead portfolio manager of Fundsmith LLP. He divides his time between London and Mauritius, where he is a tax resident.

Where does Terry Smith live?

Smith is a tax resident of Mauritius, where he relocated in 2017 for personal-tax reasons, while continuing to run Fundsmith with the firm's headquarters and core investment team in London. He returns to London regularly for the firm's annual Investor Day and for board and team meetings.