Fundsmith 2018 ASM

a better argument that compares woodford to fundsmith is: a few years ago, "everybody" throught woodford was a genius, and now "everybody" thinks he's a total duffer. how can you tell the same thing won't happen to fundsmith?

(spoiler: you can't.)

that an investment strategy feels plausible to you isn't a very good argument that it will do well in the long run. all strategies feel plausible to somebody: that's why somebody decided to run with them.

for one thing: do you think that's a method which anybody could use to pick a good investment strategy, or do you think you have more skill at evaluating investment strategies than the average person? if the latter, do you also think you're a better than average driver? (it working out for the first 3.5 years is nice for you, but very little evidence by itself.)

i certainly don't agree that fundsmith's model is easy. in fact, i'm much nearer to being persuaded that it will continue to be a successful strategy than that it's an easy strategy to follow. IMHO, presenting it as common sense, when it's a lot more complicated than that, is very much part of terry smith's sale technique for his fund(s).

the biggest difficulty is in trying to know which are the high-quality companies, which will grow earnings faster than average, and more consistently than average, over the long term. e.g. i notice fundsmith now holds facebook; will it be the next myspace or the next, er, facebook?

and many companies have high earnings growth for a decade or two, but not forever. smith likes making the (mathematically correct) point that, provided earnings growth is high enough over a long enough period, it doesn't matter if you pay a somewhat high valuation (P/E ratio) for a share. but it will matter if the exceptional earnings growth comes down to earth too soon, and so does the valuation.

and even if you succeed in identifying the quality companies, and even if they retain that status, you have some issues with high valuations. if they go crazily high, it will not be worth buying/holding despite the quality. will you be tempted into cash or lower quality companies instead?

but, going back to the idea of holding a fund whose strategy you are very convinced by ... whether or not you're correct to be convinced, this does have the advantage that hopefully you won't abandon it in times of underperformance. all strategies have bad patches, and if an investor abandons strategies in their bad patches, the investor is almost guaranteed to have poor long-term performance, whether or not the strategies they follow (from time to time) do.