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Terry Smith piles into Facebook
Aminatidi
Posted: 25 March 2018 11:28:44(UTC)
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Dennis .;59321 wrote:
I presume that everyone has seen the video of the 2017 AGM for Fundsmith? It lasts about 90 mins and quite interesting. However it does worry me sometimes that this is becoming a cult following (remember Madoff?)

https://www.fundsmith.co.uk/tv


Genuine question, how come I see quite a few comments similar to this about Terry Smith but don't recall ever seeing anything similar about Michael Lindsell or Nick Train?
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Sara G on 25/03/2018(UTC)
chubby bunny
Posted: 25 March 2018 11:37:01(UTC)
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Lindsell and Train keep a fairly low profile. Terry is more of a braggart.
Aletank
Posted: 04 April 2018 12:20:51(UTC)
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philip gosling
Posted: 04 April 2018 12:25:59(UTC)
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chubby bunny;59360 wrote:
Lindsell and Train keep a fairly low profile. Terry is more of a braggart.




"Braggart"! What does that comment make you Chubby bunny - Genius or Dopey?
chubby bunny
Posted: 04 April 2018 13:04:37(UTC)
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philip gosling;60114 wrote:
chubby bunny;59360 wrote:
Lindsell and Train keep a fairly low profile. Terry is more of a braggart.




"Braggart"! What does that comment make you Chubby bunny - Genius or Dopey?


Grumpy.
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dyfed on 06/04/2018(UTC)
geoffrey Walton
Posted: 06 April 2018 18:10:46(UTC)
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Just seen on Citywire, that Mr T of Rathbone Global has sold ALL his Facebook holdings.
Will someone else follow?
King Lodos
Posted: 06 April 2018 18:21:05(UTC)
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Smith has had a habit of selling out of losers pretty quickly .. It's what I've been doing for a long time (trading momentum).

But in this case I think Buffett would say it's the market overreacting and presenting an opportunity – fund managers don't have the best trading records
Dennis .
Posted: 07 April 2018 08:42:19(UTC)
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As much as I despise Facebook and never use it (apparently most older folk use it to spy on their kids) it does seem to have a monopoly and will be very difficult to shift from it's top spot as most people, in my experience, don't listen to the news or have a clue about what's going on in the world anyway. Remember Google circles? that went the way of Beebo and mySpace and Friends reunited (and a few more).
Dennis .
Posted: 07 April 2018 08:47:41(UTC)
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As I have over £300k in Fundsmith I keep an eye on it via a daily Google alert and it's interesting that quite often Terry is reducing his holding in one or other of the stocks. Since the fund seems to be growing steadily I wonder why he ever needs to sell anything? Any suggestions?
philip gosling
Posted: 07 April 2018 09:37:28(UTC)
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Dennis .;60282 wrote:
As I have over £300k in Fundsmith I keep an eye on it via a daily Google alert and it's interesting that quite often Terry is reducing his holding in one or other of the stocks. Since the fund seems to be growing steadily I wonder why he ever needs to sell anything? Any suggestions?




Regain balance between holdings and occasionally to make room for buying something else or to top up.
Sara G
Posted: 07 April 2018 09:58:17(UTC)
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That's interesting... rebalancing is not quite in line with the 'do nothing' part of Smith's investment philosophy. Trading costs for the fund are very low, however, so it can't be happening too often.
Stephen B.
Posted: 07 April 2018 11:05:31(UTC)
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An open ended fund has no choice but to trade to match flows, but it's probably fairly small relative to the fund size.

On FB, I suspect that for most users the fuss about privacy means nothing. What could be significant is if it faces legal restrictions that impact its profitability.
Aletank
Posted: 07 April 2018 11:47:09(UTC)
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I haven't heard of anyone i know coming off FB because of this privacy issue, not forgetting it still owns Instagram and WhatsApp.
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John Miskelly on 07/04/2018(UTC)
Fuzzy Beats
Posted: 07 April 2018 12:58:03(UTC)
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geoffrey Walton;60265 wrote:
Just seen on Citywire, that Mr T of Rathbone Global has sold ALL his Facebook holdings.
Will someone else follow?

Simon Edelsten (MWY) sold out of Facebook last year.

Walter Price (ATT) and Tom Slater (SMT) have reduced their holdings due to regulatory concerns.

Terry Smith seems to be taking the contrarian view. Roll the dice.......
King Lodos
Posted: 07 April 2018 12:59:42(UTC)
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Dennis .;60282 wrote:
As I have over £300k in Fundsmith I keep an eye on it via a daily Google alert and it's interesting that quite often Terry is reducing his holding in one or other of the stocks. Since the fund seems to be growing steadily I wonder why he ever needs to sell anything? Any suggestions?


You can see Smith's sector allocation over time (near the bottom):
https://whalewisdom.com/filer/fundsmith-llp

Compare to Lindsell Train:
https://whalewisdom.com/filer/lindsell-train-ltd

It's not just fund flows .. Look how little selling Lindsell Train do, and how little their sectors change .. LT are much more Fundsmith than Fundsmith.

One of the books Smith has everyone read is What Works on Wall Street .. And that's all about fundamentals-based investing .. When Smith compares Fundsmith to other portfolios, he shows these operating margins, gross margins, cash conversion yields, etc. across the portfolio – so he sees the portfolio as an entity, and makes sure it's one that generates a lot of cash and reinvests it profitably, and that can mean shuffling holdings quite a bit.

One of their lead fund managers is also a quant (someone with a degree in building portfolios around numbers) .. So Fundsmith is actually fairly active, and does as much buying and selling as some hedge funds I track .. But it's what you might call 'evidence-based investing' .. It's 50% Buffett, but 50% statistics.
3 users thanked King Lodos for this post.
Raj K on 07/04/2018(UTC), Dian on 08/04/2018(UTC), antigricer on 08/04/2018(UTC)
Dian
Posted: 08 April 2018 00:22:35(UTC)
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Most investors favour stocks with strong balance sheet. FB has a strong balance sheet. The debt to equity ratio is zero. It means that the company has no debt. This could be reason for Perry Smith to piles into FB. I would like to keep at least half of my holdings in debt free, cash rich companies with strong balance sheet. My only concern on the FB is its valuation. Some say it is harvesting season for FB.

However, I believe strong balance sheet firms should outperform broader markets in 2018/19.
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Guest on 08/04/2018(UTC)
King Lodos
Posted: 08 April 2018 01:52:22(UTC)
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Growth is what's justified FB's valuation .. Its PEG ratio is just 0.47 .. By Peter Lynch or Jim Slater standards, it's very cheap.

Forward PE is 22 .. Half the price of the likes of Tencent.

But on the other hand, take growth beyond next year out of it, and a PE of 22 still takes 22 years to make your original investment back (in earnings) .. It's quite a proposition to think a company like Facebook will still be around in 22 years .. But it's such an efficient business model, and no one else really has that monopoly, between Facebook and Instagram.
Stephen B.
Posted: 08 April 2018 06:32:42(UTC)
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It occurs to me that the argument for FB now is rather similar to the argument that justified a huge valuation for AOL 20 years ago. Back then AOL was a "walled garden" which provided one-stop-shop access to many services for a huge number of users. However, that model was undermined because the services got unbundled and people stopped needing a single supplier to connect them. Similarly people are basically using FB, Instagram, twitter etc to provide "plumbing" to connect information which they create themselves, and it isn't especially obvious why that needs to be done with a proprietary interface - perhaps we need a "web 3.0"? In fact people who were around in the 90s may remember Usenet and irc, which were just standard protocols with no need for a centralised service provider.
3 users thanked Stephen B. for this post.
Sara G on 08/04/2018(UTC), Raj K on 08/04/2018(UTC), Tim D on 08/04/2018(UTC)
Dian
Posted: 08 April 2018 07:13:09(UTC)
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If I am right notable companies that historically have not paid dividends to shareholders include Facebook, Amazon, and Tesla. It didn’t stop buying their stocks.

Could it be due to building strong cash flow?

Stephen B.
Posted: 08 April 2018 07:27:20(UTC)
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The argument would be that if you have a company which is growing fast and has a high return on capital it's better to reinvest the profit than pay part of it out as dividends. Another way to look at it is that if a company trades at a high multiple of its book value then $1 of retained profit will add a lot more than $1 to the share price.
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