This line is the key point that few people remember anymore: "When Jack Bogle rolled out index funds, the plan was for them to be a small minority that piggybacked off the research carried out professional stock pickers."
Bogle was also not a fan of ETFs, he thought they'd wind up being vehicles to trade and speculate on the market. There's a lot of data out there that he was right about that too. He's an interesting guy to study.
We would be somewhat wary of any decision to change strategy based on investment fashion. Can’t remember one occasion over the decades when the real Warren Buffet deferred to the stance taken by other investors
Main difference is that Buffett had permanent capital at Berkshire. When he ran his partnership and the market got too expensive for him to do anything, he shut it down and returned all the capital before his investors got impatient. Smith also had that option, he just didn't take it.
Great article TJ. I like Terry’s approach and candor at his annual meetings. Unfortunately his strategy suffers when there are momentum runs outside his investable universe. First he falls behind the benchmark . Then investors get impatient and pull their money. This forces Terry to sell on other people terms. It’s hard to run a quality strategy without permanent capital. His only flaw was being to quick to judge AI and the Semiconductor space. Lam and ASML have been high quality businesses with huge moats for many years. Although cyclical , they have an upward trend and a significant services/ support business which is typically a favored by Terry.
Agreed. I've always liked how straight forward Terry has been. If you're not a momentum investor, or index hugger, it's getting harder and harder to run any kind of active strategy without permanent capital I'm afraid.
Yes and a key advantage the individual investor has vs an open end mutual fund manager. Also, the individual can be an absolute return investor and stay focused on managing the import risks of each business rather than the return risks that fund managers must also sweat.
Great articile - I dont envy anyone managing money. Hard to see how any of this changes as long as we remain in this positive feedback loop. Active sells, passive buys which pushes more money into the top ten teck stocks dominating the indices. Until --- something in teck land breaks, most likely related to AI and when it does the reverse momentum and unwind will be among the largest drawdowns in history. I have seen first hand when Retail losses money quickly, panics and sells everything ("just get me out") and in most cases no intermediary to intervene. It will happen but nobody know when and smart managers like Terry Smith need to adapt.
I am sure Terry is a better investor than I am. But doesn't it seem like he is making this decision just before the dam is ready to break, and the momentum shifts towards the down side of things, and value makes a comeback? Buffett never would make such a move, but Warren was not running a fund either. I have been in the passive index funds, etfs, and still have mutual funds from the 90's I bought. I am holding on to them for as long as they stay open. Selling and trading are the worst thing you can do to interrupt the compounding magic. Then you also pay the tax toll to Uncle Sam. If it ain't broke , don't fix it whenever possible. Nonetheless, Terry doesn't want to close his fund. Better to pick your own stocks and have index funds. Most should not do that , however.
This line is the key point that few people remember anymore: "When Jack Bogle rolled out index funds, the plan was for them to be a small minority that piggybacked off the research carried out professional stock pickers."
Bogle was also not a fan of ETFs, he thought they'd wind up being vehicles to trade and speculate on the market. There's a lot of data out there that he was right about that too. He's an interesting guy to study.
We would be somewhat wary of any decision to change strategy based on investment fashion. Can’t remember one occasion over the decades when the real Warren Buffet deferred to the stance taken by other investors
Main difference is that Buffett had permanent capital at Berkshire. When he ran his partnership and the market got too expensive for him to do anything, he shut it down and returned all the capital before his investors got impatient. Smith also had that option, he just didn't take it.
Great article TJ. I like Terry’s approach and candor at his annual meetings. Unfortunately his strategy suffers when there are momentum runs outside his investable universe. First he falls behind the benchmark . Then investors get impatient and pull their money. This forces Terry to sell on other people terms. It’s hard to run a quality strategy without permanent capital. His only flaw was being to quick to judge AI and the Semiconductor space. Lam and ASML have been high quality businesses with huge moats for many years. Although cyclical , they have an upward trend and a significant services/ support business which is typically a favored by Terry.
Agreed. I've always liked how straight forward Terry has been. If you're not a momentum investor, or index hugger, it's getting harder and harder to run any kind of active strategy without permanent capital I'm afraid.
Yes and a key advantage the individual investor has vs an open end mutual fund manager. Also, the individual can be an absolute return investor and stay focused on managing the import risks of each business rather than the return risks that fund managers must also sweat.
Great articile - I dont envy anyone managing money. Hard to see how any of this changes as long as we remain in this positive feedback loop. Active sells, passive buys which pushes more money into the top ten teck stocks dominating the indices. Until --- something in teck land breaks, most likely related to AI and when it does the reverse momentum and unwind will be among the largest drawdowns in history. I have seen first hand when Retail losses money quickly, panics and sells everything ("just get me out") and in most cases no intermediary to intervene. It will happen but nobody know when and smart managers like Terry Smith need to adapt.
I am sure Terry is a better investor than I am. But doesn't it seem like he is making this decision just before the dam is ready to break, and the momentum shifts towards the down side of things, and value makes a comeback? Buffett never would make such a move, but Warren was not running a fund either. I have been in the passive index funds, etfs, and still have mutual funds from the 90's I bought. I am holding on to them for as long as they stay open. Selling and trading are the worst thing you can do to interrupt the compounding magic. Then you also pay the tax toll to Uncle Sam. If it ain't broke , don't fix it whenever possible. Nonetheless, Terry doesn't want to close his fund. Better to pick your own stocks and have index funds. Most should not do that , however.