저자: TerrySmith관련해설—진행자RatedA · 외국인
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Terry Smith가 2026년 7월 반기 서한에서 기존 '좋은 기업 매수·적정가 매수·무행동' 원칙에 가격 모멘텀을 추가하겠다고 밝혔다는 내용을 다룬 해설이다. 영상 제작자는 이를 패시브 자금 쏠림과 모멘텀 피드백 구조 탓으로 설명한다. 핵심 주장: 1990년대 액티브 투자자 비중 약 80%에서 현재 약 10%로 줄어 시장 비효율과 오가격 교정 주체가 사라졌다고 주장. 영국 시장에서 액티브 펀드 5년 수익률 32% 대비 인덱스 펀드는 약 두 배 상승했다는 예를 든다. 근거 사례: Snowflake 2일간 60% 상승(시총 약 900억 달러), Dell 하루 47% 상승(시총 2000억 달러 이상)을 패시브·알고리즘 매매 탓으로 해석. 성과: Fundsmith 2026년 -3%, MSCI World 11%. 2021~2026년 대부분 벤치마크 하회, 마지막 대폭 상회는 2018년. 매도 종목(Nike, LVMH, EssilorLuxottica, Novo Nordisk, Zoetis, Coloplast, Otis, Unilever, Magnum 등)은 성장 둔화·해자 약화 등을 근거로 낮게 평가. 매수 종목(Mastercard, Netflix, Uber, Visa, Yum Brands) 중 4곳은 자체 데이터베이스 기준 매수 적합으로 평가. 영상 제작자 결론: 펀드 운용사 입장의 자산 유지 압박과 달리 개인 투자자는 장기 인내심과 변동성 감내 능력으로 우위를 가진다. '좋은 기업 매수·과매수 회피·무행동' 원칙은 유지된다고 본다. 리스크: 2000년 닷컴 붕괴 후 워런 버핏의 4~5년 부진 사례를 들며 장기 부진 후 반등 가능성도 함께 언급.
다듬은 글
Buy good companies, pay a reasonable price, and then do nothing. This pretty much sums up Terry Smith's entire strategy , and it was one of the main inspirations for the work I do here on Rated A. It also served Terry Smith very well until the last few years when he started to underperform the market.
Fundsmith is a fund managed by Terry Smith. And Terry Smith writes a letter to his investors twice a year. And this year, in the semi-annual letter that came out in July 2026, he made some really big announcements that he was going to change his approach, his investment philosophy, and his whole strategy.
The headline of this letter is that Terry Smith will now consider both fundamental and price momentum in a stock's investment decisions. So, if you look at the investment mantra, which used to be : buy good companies, two – don't overpay, and three – do nothing. It seems that step three, do nothing, doesn't really work for him anymore.
And the whole purpose of this letter is to explain to his investors why this is so. The vast majority of Terry Smith's letter explains that passive investing is, in fact , the main reason why doing nothing doesn't work anymore. He says that in the 1990s, passive investors made up only 20% of the market, while active investors made up the remaining 80%, and that this has changed, and today the active part of the market makes up only 10% of the volume.
Essentially, it's the blind leading the blind, and you no longer have these active investors taking advantage of mispricing, correcting and driving passive flows. And it's quite funny because one of the original reasons for indexing was so you could track the average return of active funds, minus fees.
So you get essentially the same result as the average active investor, but the active fund charges one or 2% per year. And, of course, indexing is much cheaper. So you would save on costs. Therefore, over a 10-year period, you would definitely outperform the average active investor. But Terry Smith argues that this is no longer what is happening.
And he gives the example of the UK stock market, where the average UK active fund has shown a 32% return over the last 5 years. Whereas if you look at the index fund in the UK, it has actually doubled. So what is causing this gap? It is clear that the point is not that indexers simply save on the fees charged by active funds.
If that were the case, the all-stock tracker would probably outperform the active fund, but only by 2 3 4 5%. No, that's not happening. This is doubling. So what causes this? Terry Smith points his finger at the momentum. He says it's positive feedback. When money flows into index funds, it results in you buying the largest portion of them.
So, large- cap stocks are rising thanks to all this purchasing power. When stocks rise, they attract more passive flows because that's how indices work, and the cycle simply continues on its own. And this is what Terry Smith calls momentum. The problem is that when the blind lead the blind and passive flows simply buy more passive flows, you get a market where there is a lot of inefficiency and a lot of mispricing.
And this should be the perfect hunting ground for any active manager. The problem is that you actually need an active manager to adjust the price, and so passive investors will take advantage of that. Without an active investor to come in and correct the incorrect price, you won't get the result you're hoping for .
There is no one to correct the incorrect price. And Terry Smith says that's exactly what's happening to activist investors today . Most of them are either closing their funds or switching to passive ones because that's what their investors want. And of course, this reinforces the cycle because active investors leave, becoming passive, and all these new funds only increase the momentum even more.
So the conclusion for Terry Smith is that the market can stay illogical longer than he can stay in business. As Darwin said, it is the principle of survival of the fittest. And if a stock investor wants to survive, he must adapt . It's not that Terry Smith thinks momentum is the best way to invest right now.
But if he wants to survive, he will have to change a situation he doesn't even believe in, because after all, he is in the asset management business. And without assets under management, it would have to close. So in this video, I'll look at whether he's actually right, whether doing nothing as a strategy is dead, and whether you really need to consider momentum if you want to be a successful investor in today's market.
I will also discuss two main lessons that everyone can learn from Terry Smith's letter, namely: the difference between investing as a business and the business of investing, and secondly, what true quality is. If you are new here, welcome. The goal of this channel is to accumulate wealth faster than would be possible if you invested in the S&P 500 or another index.
And the second goal is to ensure the security of wealth. We don't want to create something and then see it all disappear in a year or two. We know that the market in the long run is weight, and that the stock price depends on earnings per share or free cash flow per share. We also know that it is impossible to account for market timing, at least for us.
Therefore, we do not try to trade. We try to focus on the fundamentals of the company so that we can buy great companies, high-quality companies, and then hold them and let them make compound capital for us. This requires patience. It's boring, but it's value investing. If you like this strategy, I will leave a link to the A rating in the video description as well as in the comment before pinning.
Members can track the portfolio, see what stocks it holds, when we buy, when we sell, and so far the portfolio has outperformed both the Msei world and the S&P 500 since inception. Additionally, I am creating a complete database of high-quality companies. They all get a quality rating, a value rating, all my research, etc.
The whole point is to find the best opportunities, to compare each company to other companies so that we can find the best opportunity at the time when we have the funds to invest. But back to Terry Smith. When I read Terry Smith's letter, the first thing that came to mind was that there is a really big difference between investing and trying to run an investing-related business.
Anyone who has ever managed external client capital will agree with me. It's a completely different game when you're managing other people's money compared to when you're investing your own money. Because when you have a fund, you are ultimately in the business of collecting assets under management.
You need to do a lot of selling, a lot of marketing, and your strategy needs to be attractive to outside investors . But once you get that asset under management, you also need to maintain it. And human nature dictates that once an investor starts to see a manager underperform for a quarter, two quarters, dare I say a year or two, they will most likely leave your fund, take their money, and invest it somewhere else.
And unfortunately for Terry Smith, that's exactly what's happening to him . Already in 2026, it will lag behind the market. Minus 3% for Terry Smith vs. 11% for MSCI World. But it's not just 2026, and it's not just the entire AI industry, because Fundsmith also underperformed in 2025, 2024, 2023, 2022, and even 2021 .
I was looking for this myself. The last time Fundsmith actually significantly outperformed the benchmark was in 2018. That was eight years ago. So this is an eternity for any investor. This is a fund that previously had an impeccable track record, significantly outperforming the benchmark, and now the stock is up 12.5% since the portfolio was created, while Fundsmith is up 13.1%.
This is slightly higher than previous figures, but it's not really something to be surprised about. In his semi-annual letter, Terry Smith mentioned Snowflake as one of the victims of passive investing, where in late May the company's share price rose 60% in 2 days. This is a company with a market capitalization of $90 billion.
So, it goes without saying , this is a huge step by any measure. Another example is Dell. This is an even bigger company. Its market capitalization exceeds $200 billion. And at the end of May, there was another 47% increase in just one day. These are not ordinary movements. Most likely, this can only be caused by passive flows and algorithmic trading, momentum, etc., whatever you want to call it.
Now, these are stocks that are moving up, but it's entirely possible to imagine examples, not given, where stocks have done the opposite. They fell by 30%, 40% in a few days. Of course, passive investing creates a lot of inefficiency in the market. How can such a large company, worth $200 billion, be worth 33% from one day to the next?
Of course, anyone who has ever run a business or is familiar with business knows that it is highly unlikely that a business will acquire such great value in just one day. But these miscalculations, these opportunities, happen. However, there are no active investors left on the market who could take advantage of them.
So, one of the main lessons I took away from Terry Smith's letter is that investors like you and me who manage our own money are actually the biggest winners from this whole move to passive investing because we don't have to worry about redemptions. We have no career risk. We have no investors to report to.
In fact, we can be very patient in our investments. Stick to the fundamentals and don't worry about keeping up with the momentum. This only works if you have a tolerance for volatility and a long-term perspective. And, unfortunately, many investors who invest their money in active funds do not have these qualities.
So, to sum it all up, I would say that our psychological advantage as an investor is actually becoming more important as passive investing becomes a larger part of the market. And this is a very good reason why you can outperform the market over time if you play a different game than the rest of the players.
So there is a real difference between investing as a business and the business of investing. And it's true that passive investing and passive flows have brought a lot of momentum to the market, and that has made it difficult for active investors to thrive . However, Fundsmith has been underperforming for eight years.
It's been a long eight years. And 8 years is enough for the weight machine to have an effect, if you know what I mean. It is unlikely that momentum and passive investing have truly taken over the market over the past 8 years. So, most likely, there is something else behind Fundsmith's low performance.
And let's digress a bit and look at Warren Buffett, who was also mentioned in Terry Smith's letter, and who is also one example of the A-rated investing method. Warren Buffett really underperformed the market, which led to the crash of 2000.com. It was about four or five years of low results. But once the mood changed, Warren Buffett came back with a vengeance and truly blew up the market for the rest of the 10 years.
Now, of course, Warren Buffett had access to that permanent capital I was talking about. And I also have to make a small caveat. It's possible that Terry Smith's strategy didn't work for 8 years, and that if he had continued in the same vein for a 9th or 10th year, things would have changed for the better.
The mood would change and he would come back with a vengeance, like Warren Buffett did after 2000. But when I look at the types of companies that Terry Smith bought as part of this whole fund management shakeup and those that he sold, something else comes to mind . Maybe, just maybe, Terry Smith got a little lost in his attempts to find high-quality companies.
Maybe he just needs a fresh start with the foundation. He needs to get rid of a lot of the names he's bought over the years, and passive investing and momentum are the perfect way to blame all of these sales on them. If you look at the stocks he sold, they are Atlas, Copco, Coloplast, Eselor, Luxotica, Inuit, LVMH , Magnum, Medler, Toledo, Nike, Novon, Nordisk, Otus, Uni Lever, Walters, Clover and Zoatus.
Many of these names are already catching my eye, as they may not be of the highest quality. Starting with Nike, this is a company that is included in the database with an A rating, and it is obviously not of the highest quality. It has been rated D or C for many years. I have written about Nike on this channel before.
Just watch what I say in these videos. The mode is not quite like that . No one knows where profitability will be next. This is a true turnaround story. I wouldn't say it's a really high-quality company. Then we have companies like LVMH and Eselor Luxotica. Two luxury companies. LVMH has grown significantly due to its Chinese expansion and many Chinese consumers wanting to buy Western luxury, and of course that trend has changed in the last few years and the company is indeed struggling.
It is now much harder to say where the next phase of growth will come from. So from a growth perspective, it's not what I would call a top quality company. Again, SLR Luxotica is a really strong company. Historically, the company has had a monopoly on glasses, but with the advent of meta-glasses and other smart glasses, competition is likely to emerge .
Therefore, I also question the existence of this moat. Of course, we have to mention Novon Nordisk and Zoatus, and I'll combine them both. Shares of pharmaceutical companies. What can I say? I made a video about it. Again, it's very difficult to have a long-term moat with pharmaceutical companies because patents are renewed every 15, 20 years, and that includes the drug development phase.
So you really have about 10 years in the market or less. And as soon as your patent expires, you have all the generics, and you lose almost all of your market share. All your pricing power too. So I wouldn't say these are the trendiest or most profitable companies. Then we come to a company like Coloplast.
Yes, it is growing. Yes , it is stable. But the debt on the balance sheet is very high. The return on invested capital is also very low, probably after this acquisition. And if you look at the valuation, it's trading at a multiple of 18, which is not too expensive, but not too cheap for that kind of growth.
Otus is another company that is pretty high quality, has a decent regime, decent switching cost, but look at the revenue. It is not growing. Free cash flow is also not growing. This is simply not the kind of company that will grow your net worth by 20% or more per year. Index Laboratories is also an interesting company.
It has long been a company that grows your assets by 20% or more per year. Index Laboratories is also an interesting company. It has long been a company that accumulates complex assets, but even after going nowhere for the past four to five years, it still trades at a P/E ratio of 41, similar to its free cash flow ratio.
So, this is not a cheap company by any measure. It will take a lot of growth for you to see good returns from this level. Then, of course, I'll briefly mention Mailchimp, which had a botched acquisition and they still won't admit it was a mistake. They also have a lot of problems with this whole AI thing .
And this is one of the names that can easily be replaced by artificial intelligence. Nobody really knows. Magnum Ice Cream, I wouldn't say, is a super-mod company. Unilever is not either. These are old fashioned companies. Back when television was the primary way to advertise, and the university levers, prosecutors, and gambling dens of this world had economies of scale that allowed them to actually buy these ad spots.
So, I hope you understand what I mean. These companies are blue chips. Historically, they have been seen as strong, trendy and sophisticated companies, but recently they have faced some challenges. Markets change over time. The landscape is changing, and these companies haven't been the best ones to own over the past few years.
And if I were starting a portfolio today, and this were my portfolio of companies, I would just expect to slightly outperform the market over the next 10 to 20 years. Another thing is that Terry Smith has historically focused a lot on ROCE, return on capital employed. And this is a really important indicator.
It shows how profitable a business can be when it invests its own capital. However, there is a second part of the equation that people always forget about, which is how many investment opportunities there actually are for businesses. So, if you have a really high return on capital, but you have nowhere else to put it, then you get impressive ratios, but the actual amount of your return as an investor will not be that great.
Going back to the stocks that Terry Smith sold, you can see how Uni, Otus or Magnum may have a high return on invested capital, but may not have investment opportunities for real growth. For example, Otis and LVMH are other companies that had poor opportunities. Good. Now, if we look at what Terry Smith is buying, we also see some names that catch our eye.
And I can tell you right away that Mastercard, Netflix, Uber, Viva Systems, and Yum Brands are all covered by the rating database. And in fact, four of them are considered pretty good buys right now. Quite good opportunities for purchase by our algorithms. So what does this mean? This means that in reality, the companies that Terry Smith chooses to buy on impulse may be better companies to buy and hold in the long run compared to the ones he sold.
And when I check companies through the database, I look at three things. I look at the moat, I look at the profitability, the profitability profile, the growth rate and the reinvestment opportunities. And I also look at uncertainty and risk. So the fact that four out of five are now considered buyers means that Terry Smith has really hit on something and will likely see better returns in the future compared to what he sold.
In other words, Terry Smith's entire letter can be summed up in a few words. We sell not-so-good companies and buy better ones. But he would have to be very honest to admit it, and he would probably lose a few friends and investors along the way. But for us, it means that the investment mantra of one: buy good companies, two—don't overpay, and three— do nothing probably remains unchanged.
Because if you focus on the right quality metrics, invest your own funds, and don't pay attention to external capital and investors, then you are already on the right track. Okay, that's all in this video. Thanks for watching, see you next time.
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