Terry Smith: In Investing, Simplicity Is Harder Than It Looks

During this interview with Dubai Eye, Terry Smith discusses his simple and effective investment strategy: buy good companies, don’t overpay, and then do nothing.

Drawing a parallel with aviation, he explains that like a pilot managing a crisis, investors must first ensure their product or service delivers value before communicating it. Smith stresses the importance of investing in businesses that have been around for a long time, generate cash, and are run by honest, capable people.

He believes in Warren Buffett’s adage of buying great companies at fair prices and highlights the cost of unnecessary portfolio changes, favoring long-term holding of a select few quality businesses.

Here’s an excerpt from the interview:

Smith: I don’t know if you’ve seen the movie Sully, about Sullenberger the “Miracle on the Hudson.” I was a keen amateur pilot, and one of the things I was taught is that in an emergency, the important mantra is “Aviate, Navigate, Communicate”—in that order.

When both engines blow out, it’s no good just saying “Mayday.” You’ve got to fly the plane first. It’s the same here: have a product or service that delivers something valuable to investors, then communicate it.

Host: Your mantra is famously simple—buy good companies, don’t overpay, and do nothing. Explain that to us.

Smith: Sure. It’s simple, but that doesn’t mean it’s easy. Doing simple things is often the hardest. We try to buy good companies—though I have a long definition of what that means. The key is to buy businesses that have been around for a long time, make high returns on capital, generate cash, and are run by honest, capable people.

And then we try to buy them when they’re at least reasonably valued. We believe in Buffett’s adage: it’s better to own a great company at a fair price than a fair company at a great price. Once we have a portfolio of good companies, we do nothing. It costs money to change things, and the grass isn’t always greener on the other side.

If you own good companies, you’ll be okay. We’ve got about 80 companies in the world that we think are investable. So once we’ve assembled that portfolio, why change it?

You can watch the entire interview here: