As star fund manager Terry Smith publishes his latest letter to shareholders we consider the value of this type of commentary
Thursday 24 Jan 2019 Author: Tom Sieber

The idea of a ‘letter to shareholders’ might strike some of you as a touch old fashioned and grandiose but the commentary presented by some fund managers can actually offer very useful insights and up-to-the-minute market intelligence.

As we write Warren Buffett’s annual missive to shareholders should be about to drop and Fundsmith’s Terry Smith has just popped his own in the post.

Smith is a newcomer relative to Buffett who has been completing this exercise since 1965. His ninth annual letter contains too many nuggets to summarise in full in this article – you can read it for yourself at this link and as far as this author is concerned it is well worth doing so.

Particularly as Smith is responding to the worst absolute annual performance since the inception of his Fundsmith Equity (B41YBW7) fund.

Smith’s perspective shows the benefit of experiencing multiple economic and market cycles. Comparing the recent volatility in
stocks with the 22.6% decline in the Dow Jones Industrial Average on Black Monday in October 1987, he notes looking at a long-term chart of the Dow Jones you would need ‘good eyesight or reading glasses’ to spot this precipitous collapse in the index more than
30 years ago.

The letter also includes a very good summary of how a genuinely long-term investor should respond to swings in the wider market.

‘A bear market will occur at some point. We may indeed already be in one. The best stance is to ignore it since you can’t predict it or position yourself effectively to avoid it without impoverishing yourself by forgoing gains. But you have to possess the emotional and financial stability to stick to this stance when it strikes.’


He also shows zero sign of abandoning the focus on quality businesses which has underpinned his investment strategy to date, with no intention of rotating into value stocks. Instead he will stick with an approach which involves buying good companies, not overpaying and then doing nothing.

There are plenty of good communicators in the fund management industry who produce freely available commentary on the markets and their portfolios, often on a monthly basis.

As well as providing a useful perspective on the financial markets as a whole, they often provide expert views on individual stocks in their portfolio. Some other names worth seeking out in our view include, appropriately enough, Buffett disciple Keith Ashworth-Lord who runs the UK Buffettology Fund (BKJ9C67).

We would also flag noted contrarian investor Alastair McKinnon who heads up the Scottish Investment Trust (SCIN) and Nick Train from LF Lindsell Train Equity (B18B9X7).

You might not agree with everything you read but, at the very least, it can be useful to challenge your thinking with a well-supported alternative view.

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