In this recent edition of medirectalk, Terry Smith explained why most companies are not susceptible to reason. Here’s an excerpt from the interview:
Terry Smith: Yes, I’ll elaborate. As my colleagues will attest I think if you speak to them this was one where I was very, very, very, close not just to trimming it but to selling the whole position at that point and I hesitated. And I was wrong!
So it wasn’t the mantra I think that was wrong because I was on the verge of acting against the mantra and I was persuaded not to if you like, and I partly by myself… I’m not blaming somebody else for this, and I shouldn’t, I’m not…
I think that part of it that one must query, and that’s partly why I wrote this up in the letter this year for people is I think that the problem is our view that if we’ve got a good business, and we definitely had a good business in PayPal.
I don’t think there’s any doubt whatsoever this was a good business business with sort of 30% returns on capital and growing well well into the double digits.
There was absolutely no doubt that we had that on our hands. When things started to go wrong, and they did start to go wrong as I say, with lack of engagement with the new clients, with cost control, with the acquisitions.
I think we should be much less forgiving with the engagement basically because our experience now having tried it a couple of times is that most of these companies are not susceptible to reason when it comes to this kind of thing.
You can watch the entire discussion here:
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