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Introducing the LemonFools Personal Finance Calculators

Terry Smith explains..........

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
GeoffF100
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Re: Terry Smith explains..........

#131764

Postby GeoffF100 » April 12th, 2018, 8:06 pm

You might like to read this:

http://citywire.co.uk/money/fca-best-bu ... et/a971879

FCA: 'Best buy' and 'rated' funds fail to beat market.

bluedonkey
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Re: Terry Smith explains..........

#131767

Postby bluedonkey » April 12th, 2018, 8:17 pm

Just read through all of this thread in one go. Very interesting and thank you to all of the posters. I never realised there were such interesting discussions outside HYP Practical! Ha ha.

I'm impressed by the annual Terry Smith letter, having just skimmed through the 2017 one. Also by the comparison in this thread with the apparently less outwardly showy - it seems - Scottish Mortgage IT (thank you Dod).

All food for thought. Capital growth vs income. IT premiums/discounts. OEICs vs ITs. Past performance as a basis for decision-making. Importance or otherwise of charges.

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Re: Terry Smith explains..........

#131900

Postby GeoffF100 » April 13th, 2018, 10:59 am

In principle, buying an IT on a 30% plus discount at the bottom of a bear market is a good idea. The discount can boost the yield sufficiently to cover the excess costs over buying a tracker, and the discount should narrow if the market recovers.

The largest discount I could find currently for an IT with lowish charges was Edinburgh IT. Performance has been perennially rubbish. That is bad if you already have it, but good if you are buying, because you should get a good discount. Unfortunately, the current discount is under 10%. The EMS is only 2,000 shares. You are not likely to get more than a few thousand pounds worth in one go after a crash. Although there is not reason to believe that the past bad performance will be repeated, the fund could do well or badly. With a tracker, you should be very close to getting a market return whatever happens.

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Re: Terry Smith explains..........

#132033

Postby hiriskpaul » April 13th, 2018, 7:09 pm

GeoffF100 wrote:In principle, buying an IT on a 30% plus discount at the bottom of a bear market is a good idea. The discount can boost the yield sufficiently to cover the excess costs over buying a tracker, and the discount should narrow if the market recovers.

The largest discount I could find currently for an IT with lowish charges was Edinburgh IT. Performance has been perennially rubbish. That is bad if you already have it, but good if you are buying, because you should get a good discount. Unfortunately, the current discount is under 10%. The EMS is only 2,000 shares. You are not likely to get more than a few thousand pounds worth in one go after a crash. Although there is not reason to believe that the past bad performance will be repeated, the fund could do well or badly. With a tracker, you should be very close to getting a market return whatever happens.

How quickly things change. Just 2 years ago, Edinburgh had the 3rd best returns in its sector over 5 and 10 years and traded near or at a premium to NAV. Now they are at the bottom in their sector over 1 year, with a total shareholder loss of -6.4%. The allocated AIC benchmark is the FTSE all share, which gained 3.2%. From memory I think Edinburgh was discussed/tipped a lot on the old TMF board, but don't seem get mentioned much anymore. Perhaps the wise investors who used to rate Edinburgh all got out at the right time? Still, couldn't happen to Fundsmith could it?

GeoffF100
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Re: Terry Smith explains..........

#132041

Postby GeoffF100 » April 13th, 2018, 8:15 pm

Yes, perennially rubbish was not accurate:

https://www.google.co.uk/search?rlz=1C1 ... ab=COMPARE

EDIN has had its good times and its bad times, but in the long term it has tracked to FTSE 100. That is not impressive though, because of the gearing. I had just looked at this:

https://www.trustnet.com/factsheets/t/e ... rgh-it-plc

Alpha was -10.8 over the last year, and -2.34 over the last three. Not good.

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Re: Terry Smith explains..........

#132201

Postby langley59 » April 14th, 2018, 5:33 pm

For those attempting to replicate Fundsmith by holding the constituent shares directly, to save on the charges, as I will shortly be doing as I divest a substantial direct Fundsmith holding which I purchased with the 25% tax free cash from my SIPP 4 years ago and use the proceeds to buy the shares in my and my wife's ISAs over the next several years...the collapse in the share price of SAGE on Friday following a profit warning affords an opportunity to pick up one of the highly rated shares at a cheaper price. In fact this share has been falling throughout 2018 and now stands 20% below its peak in January. It is tempting to buy now, albeit the price settled a lot higher on Friday than it had traded during the day, however I am tempted to wait a while as experience shows that most profit warnings are followed by a period of poor performance and often further bad news releases.

What I like particularly about SAGE, as well as the fact that it is in the Fundsmith portfolio, is that it is pushing its subscription model whereby customers are targetted to pay a recurring subscription (for ever) rather than one off purchases.

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Re: Terry Smith explains..........

#132270

Postby Pendrainllwyn » April 15th, 2018, 2:40 am

I am not seeking to replicate Fundsmith or any other fund but I do take an interest in the holdings of a few selected funds I respect as a means of generating ideas which I then research.

The funds I follow typically have
- an investment philosophy that resonates with me
- a significant investment by the fund manager in the fund (in some cases they are the largest investor in the fund)
- concentrated, high conviction, positions (less than 35 holdings and sometimes much less)
- long holding periods / low stock turnover
- transparency on holdings (and the more frequent disclosure the better)
- meaningful commentary on why they own the holdings they do
- and critically, some degree of overlap between the funds holdings and what I would buy for myself

I haven't added Fundsmith to my selected list of funds to follow yet (there are only so many funds I have the time to follow). On transparency, it's hard to find the annual report on their website. I found the 2016 annual report by using their search facility. There is no link to annual reports elsewhere - no annual reports are listed under the reports and accounts section of their documents tab. They just have the short form report which provides partial disclosure of positions. Anyone found an easier way to access the annual and semi-annual reports?

Pendrainllwyn

P.S. Flyer61, regarding L'Oreal, my broker will handle managed registered shares for me but something they have said doesn't jive with L'Oreal's information on their website so will talk to L'Oreal before updating further.

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Re: Terry Smith explains..........

#132344

Postby flyer61 » April 15th, 2018, 3:59 pm

Pendrainllwyn

thank you for your efforts on L'Oreal. I fear that I will not be able to avail myself of this through HL.

langley 55

My core direct holding of Fundsmith stock are Unilever, Pepsico, Nestle, Philip Morris and Johnson and Johnson. This gives me 17 dividends a year! I feel fairly confident these Companies will outlive me and pay and grow those 17 dividends a year for my natural.

I am working on bringing up to equal weight with the above, L'Oreal, Estee Lauder, Kone, Automatic Data Processing, Diageo, Sage and Reckitt Benckiser. This will take time.

To help improve the initial yield I have added Kraft Heinz and Kimberley-Clark (I am aware there are growth issues with these)

Growth hopefully of both capital and dividends is what I am looking for over the rest of my life without taking undue risks. Many are well down off recent highs. I accept the currency risk and presently it is nice to see Sterling up. My experience of sterling has been it crashes from time to time...

simoan
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Re: Terry Smith explains..........

#133309

Postby simoan » April 19th, 2018, 4:42 pm

Well, it looks like following on from Facebook, Fundsmith Equity fund has taken another kick in the cojones today... Philip Morris currently down 17% :-(

All the best, Si

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Re: Terry Smith explains..........

#133313

Postby ADrunkenMarcus » April 19th, 2018, 5:08 pm

simoan wrote:Well, it looks like following on from Facebook, Fundsmith Equity fund has taken another kick in the cojones today... Philip Morris currently down 17% :-(

All the best, Si


Time to bargain hunt?

Best wishes

Mark.

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Re: Terry Smith explains..........

#133672

Postby Pendrainllwyn » April 21st, 2018, 6:38 am

Philip Morris. I have an aversion to companies with negative shareholders equity. No doubt there are some quality companies such as PM in that situation but they share it with many troubled companies so I have tended to play safe and stay well away. Happy to give up a few gains to avoid being wiped out on another occasion. Negative shareholders funds also wreaks havoc with my valuation model. I expect there is a way around it but it will be more complicated and I haven't ever thought it through. Enough good shares without that problem.

L'Oreal. Now own managed registered shares and will be entitled to the bonus dividend in 2021 and beyond if I hold that long - which I intend to. Fortunately, no charge levied, but whichever broker/platform holds for you may well charge to transfer to managed registered and charge again to transfer back again to bearer form should you wish to sell. There are cheaper stocks than L'Oreal but they have a strong position in a great business. Happy to hold.

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Re: Terry Smith explains..........

#133694

Postby ADrunkenMarcus » April 21st, 2018, 9:30 am

Pendrainllwyn, I was interested to hear about the bonus dividend. Can you tell me a bit more about this?

I own Diageo (1998), Reckitt Benckiser (2011), Unilever (2013) and Kone (2017) directly. I'm always on the look out for quality companies.

Best wishes

Mark.

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Re: Terry Smith explains..........

#133714

Postby Pendrainllwyn » April 21st, 2018, 11:02 am

Hello Mark,

I am no expert but essentially
Yr 0 - Buy registered shares or convert from bearer to registered shares before the end of the year
Yr 1 and 2 - Hold shares for 2 full calendar years
Yr 3 and thereafter - Receive loyalty bonus dividend of 10%

When you buy you buy the trading ISIN code. The ISIN code will change when you convert to registered. It will change again at the end of year 1 and again at the end of year 2. If you want to sell, regardless of the time you wish to sell in the evolution above, you need to convert back again to the trading ISIN.

L'Oreal's Investor Relations website has excellent information on it.
http://www.loreal-finance.com/eng/regis ... alty-bonus

including a leaflet on becoming a registered shareholder.
http://www.loreal-finance.com/_docs/pdf ... tif_UK.pdf

BNP Paribas is L'Oreal's agent. You can have direct or managed registered shares.
A. Direct registered
1 If you don't own the stock today you can open an account with BNP and buy the shares through them. 0.15% brokerage fee plus tax. No custody fees.
There is a website for you to keep track of your position.
2 If you already own the stock you can have your broker transfer the shares to BNP.
Form to fill in here: http://www.loreal-finance.com/_docs/fr/ ... pur_UK.pdf
Those friendly people at L'Oreal will reimburse any transfer charges you incur up to 50 Euro.
Your broker is now out of the picture.

B. Managed registered
As with 2 above however here your broker will continue to manage the position for you.

The 2017 dividend was Euro 3.55 so a yield of 1.85% and the 10% dividend worth 0.185% ignoring rounding. I pay 30% withholding on that. But if dividend growth continues ...

I cannot guarantee the above is correct. I have done B. Managed registered.

Hope that helps.

Never heard of Kone before. Cities are getting taller. Will take a look.

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Re: Terry Smith explains..........

#133721

Postby ADrunkenMarcus » April 21st, 2018, 11:30 am

Many thanks for your detailed reply!

Best wishes

Mark.

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Re: Terry Smith explains..........

#133757

Postby flyer61 » April 21st, 2018, 4:29 pm

Many thanks from me as well.

Flyer61

Kone, when you walk round Gatwick airport you will quickly understand what they do. Return on Capital is very good....

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Re: Terry Smith explains..........

#133763

Postby monabri » April 21st, 2018, 4:51 pm

The " Terry Smith show" was over an hour long. I sat through it.

Here's a short 15 minute video that I think is worth a viewing if you are considering an investment in TS.

https://youtu.be/IFQxHCL9CHs

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Re: Terry Smith explains..........

#133886

Postby Alaric » April 22nd, 2018, 11:20 am

FredBloggs wrote: rapidly degenerates into yet another "Smith and the others too, are just lucky" etc... puff piece.


Smith does have a method which isn't sticking pins in a stock list. As far as I understand it, his method is to look very carefully at the accounts of the companies which he purchases or intends to purchase. Given the relative frequency with which companies fail within months of being given a clean audit bill of health, there is something to be said for his method. The video talks of the out-performance being down to increasing the concentration risk. Get that right and out-performance is valid and may be repeatable.

The increasing size of his assets under management is also a risk factor, meaning that the net will have to be spread wider or being a holder of some significant chunks of Companies. But that doesn't stop other fund management groups.

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Re: Terry Smith explains..........

#134072

Postby flyer61 » April 23rd, 2018, 10:51 am

Likewise, the video smacked of sour grapes. TS and his team look at the data in vast detail before investing. No doubt he will have some duds along with periods of poor 'relative' performance but the central premise is quality Company's. It makes me extremely nervous that IT's like IPE and NCYF trade at significant premiums to their 'sub investment grade bonds' (read near Junk) that they hold.

I am much happier buying quality at a premium than I am lowly rated bonds.

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Re: Terry Smith explains..........

#134137

Postby Pendrainllwyn » April 23rd, 2018, 1:47 pm

ADrunkenMarcus,

Perhaps some overlap in what we look for. You shared four holdings and I purchased two today. Reckitt Benckiser and Kone. I wouldn't have looked into them if it wasn't for your note. So thanks for that.

Pendrainllwyn

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Re: Terry Smith explains..........

#134151

Postby Pendrainllwyn » April 23rd, 2018, 2:24 pm

Not sure how the presenter managed to make a 13 minute video seem to last longer than the 90 minute video of Fundsmith's Annual Shareholders Meeting but he did.

"Whenever you see a high return there has to be a high risk". Value investors who believe in investing when there is a margin of safety will disagree.

But it was the Panda analogy that finally did it for me.

Pendrainllwyn


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