Hello friends, in today’s article, we see the book summary of Investing for Growth by Terry Smith book. If you read this book, you get specific knowledge about the stock market and when to enter the market. so let’s start this book summary.
Book Summary:- Investing for Growth by Terry smith
This is the preferred strategy of fund manager Terry Smith.
Imagine that you are buying the car and your friend also buying the car.
Your car is much higher price i.e. 3X than your’s friend car price.
Your’s friends car is very cheap and looks like a dumpster and your car that cost you 3x money looks good and e3xpensive.
When you make an initial purchase you cry and say, I give this money for a car and my friend is happy and says he is saved money.
But after a year, you see, your car is much better for going long distances, without any problem and without any maintenance of the car, then you are happy.
Your friend’s cars go to the mechanic in a year becoming rustier after a couple of years. and failing from time to time, and the gearbox making noise. (Investing for Growth by Terry Smith)
overtime your friend ends up crying much more than you. So this is true for many things that we consume and buy and it can also whole true for the stock market and investment.
Terry smith fund, from the initial time, kept buying quality can in the stock market.
In this article, we explore Terry smith’s method of choosing stocks, without overpaying.
Fundsmith return is 5x in over a decade from this method.
let’s see the top 5 points from this book Investing for Growth How to make money, only buying the best company in the world.
1) Great Car? or Great Choice? (Investing for Growth by Terry Smith)
half a century ago, professional gambler Alex bird-like betting on horse races.
Nowadays, we filmed digital live race performances but on bird days, only possible to see race outcomes, when it comes to the close ending. Bookmaker continues to setting outcomes even when known races actually finish.
Bird develops a strategy to use to his advantage. the bird learns that the horse in the back looked like it was moving faster so most of the crowd bet on the back horses.
Bird realizes that when we close our one eye, this above illusion dismantles itself, then he places a bet, and he lowers the actual outcomes in this way bird makes a fortune, by betting a hundred correct bets in a row.
Mr. Smith has some approach to investing, much like the bird’s approach in horse racing.
wait until you know how the winner is and wait for the bookmaker, Market in our case to set the odds.
then just take your pick among the winner. In the stock market obviously more careful about price or the odds than birds had to be horses. (Investing for Growth by Terry Smith)
who are the winners and flow do we recognize them.
We can’t compare business with IT space and bad at consumer goods.
Both sectors have their winner, e.g. Apple and beverage both have the winner.
for the warren buffet has a simple test what we called ” Ask about the “silver bullet”
Ask competition in the industry, who they shoot down each other with a silver bullet, among their peers.
the company, there other companies afraid of typically truly a winner in the industry.
let’s see the sign of a winner
- High-profit Margin
- High return on assets
- Increasing market shares
make sure, you compare apple with apple, which means some industry companies.
You do need to pay someone so this is the cost of the deep moat.
let’s see the second points
2) Don’t pay extra for Unnecessary Gadget:
You know the small screen T.V. rear seat and cars. I think these are quite unnecessary. But some people keep insisting on their high importance. (Investing for Growth by Terry Smith)
same as a dividend investor
Dividend Investor:- That analogy must be like dividends. sometimes nice, but not factor to go too much for waiting.
some companies get critics because they don’t pay dividends. some of you, say, those companies don’t give dividends, they don’t have a value.
Let’s see this is theoretical. why is this correct.
this is correct but only if there never will be any dividend. the flow in the assumption of those people because of the companies don’t pay out today’s, they assume they never will be.
let’s understand how much is right above mindset.
In 1980, before that, Berkshire Hathaway from 1965 to 1980 give a 45X return.
some people say Berkshire must start paying a dividend.
this unconditional right of investors to participate in the investment return.
so I ask people Berkshire Created some value to shareholders, for the last 42 years, paying a yearly dividend of about 15% of the profit.
People say yes it is but actually, there is no chance in hell. the long-term shareholders receive lowest the value of Berkshire.
So there are two reasons for the above value.
- Berkshire Hathaway generates more than 1 dollar value, for every one dollar kept in business.
- there are taxes on dividend, so investor loses their chunk of money in the tax.
this leads to a significantly lower long-term compounding effect.
Buffett has to manage keen to keen, high cost at a minimum. In practice wealth bullying in the market is created by both stock appreciation and dividends.
Total return= Stock Appreciation + Dividends
Point is that, quite frequently, it is more than beneficial to the shareholder total returns, reinvest in the c0mpanies, and kept dividend altogether. (Investing for Growth by Terry Smith)
give the money, a handful to the business. Except management and superior should know that in the case. You are not discarding the investment because there are no dividends.
On the contrary. lack of contrary might be good company.
buying only companies that correctly pay the dividend, it’s a lot like consisting buying only cars with useless gadgets.
3) Wait for the Discount:-
Most of us agree tesla has an excellent opportunity for continued growth. You probably, also realize Microsoft company also has a durable Moat ( filled with Shark and crocodiles)
Apple company also has a moat of Pricing power, in a technology company
Must like LVMH the luxuries part of the Fashion industry
Suppose you only look at the quality of business without considering its price tag so if this then you are the victim of First-level thinking.
Famous Investor, Howard Marks says, ” There’s no such thing as a good or bad idea regardless of price.”
Buying something that succeeds with growing 20% per year for the next 7 years.
Generate the crapy performance, stock is valid for growing 30% per year for the same period.
for the patient time preferred, the opportunity is always around the corner.
So is the chance to acquire a quality company at discount.
hey, you would buy a high-quality car from 1st point of this book
Mr. smith’s approach is to try to pick up them when the same reason they are less loved by the market.
When he looks at any excellent company story, e.g. Microsoft.
You notice few-time companies fall down dramatically in evolution. (Investing for Growth by Terry Smith)
If you are preferred with mindset, you may be bought when stock is down by 60% from the high.
there are some common things among situations when companies stocks go down means we get at a discount.
let’s see when the stocks get us at a discount price.
1) Quarterly result below expectations:-
Suppose people expect a 35% return in this quarterly result, but actually, the company gives a 20% return, then people get negative about this and the stock becomes tumbles.
when this happens, keep in mind what Terry smith says ( the author) ” You just a lap around the sun, now well, the quarterly result is just 1/4th of that year.
Minor 3 months of company, can change the investor sentiment about companies, go from this business taking over the world, to this company ruin in five years. (Investing for Growth by Terry Smith)
If you keep a long-term view, when everyone is short sides, you can pick up even great company, at fair prices from time to time.
2) General Panic:-
As we see in the covid-19 crash, Heard of sheep starts running in the same direction, pushing the subway more or less everything tumbled.
so some of the companies actually sector benefited from pandemic.
Take Microsoft for example, stock hit -25%, and the conclusion is that their operation was negatively affected by the new virus.
so if you fishing in the water of quality companies, with above-average multiple. It’s frequently a good idea to wait until the storm to pull out all fishing.
so how would you recognize, that one of the businesses is under margin or say undervalued?
4) Don’t let the paint job fool you:-
I think most of you know the P/E ratio. Basically, ita a tool to test how is the price of a company?
You know sometimes it food you just like the nice paint job, on the crappy car. If you purchase a used car before, you have probably experienced this.
It looks fine outside, clean inside but looks under hoods, it big mesh.
In the stock market, equivalently is great looking at turnout not so be great.
Unfortunately, the earnings of the company or also a favorite P/E ratio can manipulate by CFO, with mischief in his mind. (Investing for Growth by Terry Smith)
for example. Earning per share may not be growing as fast as you thought. Due to investing being, continuously diluted by the creation of additional shares.
So you know Pizza gets bigger, the slice is getting in many shareholders,
or
Instead of diluted shareholders, another reason for some miles could be discover of manipulated earnings.
for instance, depreciation can be exaggerated or understood, depending on the intention of the CFO.
Sometimes companies capitalize on the more of their cause, more actually wanted.
Back to the used car examples,
How did the investor avoid, finding this wreck only after analyzing five hours?
Another method you can use according to Mr. smith
This is FCF ( free cash flow ) Yield per share
go to the cash flow statement of the company
Calculate:-
Cash from operations – capital expenditure / Price per share = FCF
Warren Buffett never presented an explicit calculation of, what the called owners earning.
I FCF is similar to the Owners earnings.
This is cash, which you can use to acquire other businesses and pay dividends as shareholders or just save for rainy days. (Investing for Growth by Terry Smith)
5) no car is a True All-Rounder:-
Tesla might be a great car to own If you drive primarily in the city. However occasion you have to visit your mother-in-law in the village, so here the tesla car, doesn’t work well, then you probably wish, you have another car.
So through away a tesla just because of this, No you can’t find a car, that optimal and perform best in every single situation.
so that is true for all stock market companies two. Many investors, trap in switching investments from one company to another one.
perhaps the fund manager always chases performance.
Perhaps growth at fair price strategy outperforms in 2021.
is this a reason for switching? so there are a lot of factors affecting what is hot and not in a given market.
Investors’ willingness to bear risk is ever-changing with micro factors.
Such as interest rates, and inflation beliefs precision in the economic cycle.
Again 1 year takes to go around the sun. What would be 1 year is a reasonable period for yar to measure your anyone else performance, it’s because of movement of heavy bodies. (Investing for Growth by Terry Smith)
ideally, evaluation results after a whole economic cycle, to be the bull and bear market.
Can tell you, is which actually winning one.
If you have the sound prices stay true to them.
reminder it, Buy high, sell low doom to repeat until your portfolio is hollow.
this is all about Investing for growth book summary written by Terry smith.
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