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Well. Every day, millions of investors bet on the next big crash or the next rocket stock. They chase trends. They are trying to time the market. Lemur traders on other channels want to sell their expensive Elliott Wave subscriptions because they are warning of the end of the world. That's all nonsense.
Welcome to the world of gamblers. Oh dear! While Wall Street breathes frantically, there is one man who calmly watches as his portfolio makes the index look old year after year. His name is Terry Smith. His credo: "Buy good companies. Don't overpay. Do nothing." Sounds banal? Phew, but it's the hardest investment craft in the world.
We are living in an era where short-term volatility is often mistaken for genuine entrepreneurial risk . Hmm. Investors are selling good companies because the market corrected by 2% today. That 's the red flag that will ultimately cost you millions. Today we're deconstructing the Terry Smith mystery.
Why doing nothing is not laziness for Smith , but the highest form of economic discipline. Stay tuned. This will be razor-sharp. We need to put the myths aside. Well . Smith doesn't look at the P/E ratio chart from any Bloomberg terminal. He looks at the only metric that shows whether a company truly creates value for shareholders : the ROCE.
The ROCE is difficult to find on websites . Here, tikr.com is the best site I could find. Registration is free if you only want to view basic data. Take a look at Nvidia. Here is a ROCE of 74.7%. That is an incredibly high value. Return on Capital Employed. To put it simply . How much profit does every euro that the company has invested in its own mill generate?
A company that rotates at 20% ROCE is like a money printing machine. Anything below 10% is, in Smith's eyes, a waste of time. Let's look at the data. Phew. Von Smith does not invest in companies that inflate themselves through cheap loans. The median ROCE in the portfolio remains stable at over 25%.
This is the elite, this is what Smith calls good companies. Incidentally, you can find insights into the portfolios of well-known funds on Dataroma . A site I can highly recommend for this type of research. Back to Terry Smith's fund. Companies with such a high ROCE hardly need any external capital.
While the vast majority of companies groan under their mountains of debt due to rising interest rates, Smith's firms are sitting on a mountain of cash. The balance sheet is the anchor. So if you ask me about the secret, it's the mathematical inevitability of high returns with low capital requirements.
This is not an opinion, this is pure arithmetic. Terry Smith is not an explorer. He is the architect who has perfected the teachings of Graham and Buffett for the 21st century . Well, that's no coincidence, that's evolution. Think of the dot-com bubble of 1999. While half the world was betting on unprofitable tech startups, Buffett was already preaching: "Own the business, not the ticket." Smith understood this and radicalized it.
The industrial revolution gave us machines that replaced our muscles. The digital age gives us companies whose machines are intellectual property. Brands, algorithms, network effects. Oh dear. This is the stuff that 21st-century toll booths are made of. Smith is not looking for the next big thing. He is looking for companies that have cemented their market power over decades.
He wants the moat that he saw 30 years ago and that will still be there 30 years from now . Historically, the best investments have always been the most boring. While the world clamors for the next crypto hype or AI sensation, Smith buys soap and diapers. Phew. Boredom is a damn good source of returns on the stock market .
Clear. Smith's portfolio is not a hodgepodge. Phew. It is a surgical procedure. He divides the universe of stocks into three zones. Those he loves, those he tolerates, and those he never labels. He loves tech, but only if it's not a hardware game. Oh dear. Hardware ages like a slice of toast in the sun.
Software that is firmly embedded in workflows, like Microsoft's, is a lifetime subscription model . This is no coincidence. That's a calculated move. Then the consumer sector. Why Nestlé or Unilever? Because they own toll booths. Pricing Power. When raw material prices explode, the customer pays the surcharge.
When the competitor raises prices, the customer just shrugs . The margin remains stable. And never. Smith avoids banks, utilities, and real estate REITs like the plague. Hmm. This business model does n't work without massive amounts of external capital. For Smith, a company that has to work hard to grow is not a company.
This is a financial instrument. His stock picking is therefore not guesswork. It's the search for the Silver Bullet. He always wonders, what is the one company that is keeping the others in the sector up at night ? That is the definition of market power. We have seen that Smith's success is not magic.
Well, it's a relentless reduction to the essentials. But is the system infallible? Of course not. Nothing is infallible. The biggest risk is a so-called style cycle. When the market penalizes quality and hypes cheap junk stocks, Smith looks old. But that's precisely when the wheat is separated from the chaff.
Anyone who loses their nerve here has already lost. Clear. Geopolitical risks, inflation, phew, for Smith those are no excuses. He invests in companies that simply consume these problems as a business model . A company with a 30% margin can laugh off inflation. What does that mean for you? You don't have to copy the next Terry Smith.
You need to copy his mindset. Stop trading. Start treating businesses like your own home. Hmm. It wo n't get any more comfortable. Don't chase after the next hyped stock. Don't be a lemur. Buy companies with substance, companies that I would describe as gorillas. High margins, high raw materials and low debt at a favorable price.
The most important lesson is the hardest. Time is the currency you pay for quality investments. Anyone who is not prepared to hold a stock for 10 years shouldn't even own it for 10 minutes. How do we integrate Terry Smith into our Modern Gorilla Value strategy? We remain Gorilla investors. Clear. We hunt down monopolies and rely on proprietary architecture.
This is our DNA. But where can we learn from Terry Smith without diluting our strategy ? First, balance sheet hygiene. While we seek aggressive growth, Smith reminds us that no amount of growth can fix a bad balance sheet . We'll stick with our gorillas, but we'll scan their debt structure with Smith's Roche glasses.
Wow, that makes us even more resilient. Secondly, the do-nothing discipline. Our quarterly roll is a disciplined process. But Smith teaches us that you don't have to react to every minor stormy period in the quarter with frantic restructuring . We're sticking with our 10%, but we're developing a thicker skin against short-term volatility.
Where do we differ? Smith is more of a security fanatic who also occasionally buys boring consumer giants. We as Gorilla investors want the technological spearhead. This is our Edge. We take its mathematical rigor and apply it to our tech monopolies. Terry Smith also warns us to be cautious with hardware investments, and he is right.
Here, the game of kings and princes that I mentioned is played. We need to be careful here. I will soon explain in a separate video how this game works and what you need to pay attention to in order to avoid falling into the Cycle Trap. The most important thing is to stick to your strategy. Only those who consistently follow the same strategy will be successful on the stock market.
Otherwise, the lemurs' fickle nature threatens to take your money. Therefore, learn from the best how to become even more ruthless in your selection. We are the gorillas, and now we have the mathematical filter to hunt them even more precisely. Clear. But let 's take a look inside the engine room, into our real model depot, opened on April 1st.
Despite the Iran crisis and the ongoing geopolitical panic. It has grown surprisingly well. 8.1% in less than 4 weeks. This is record growth. But honestly, the Nasdaq has continued to rise . Software stocks are dragging down our performance. Let's take a look at Nvidia. Phew, everyone knows the rally, everyone knows the hype.
But we're not looking at the course. We're looking at what's happening in the engine room. Well. The data on Ticker doesn't lie. Check out this ROCE. 74.7% That. This is not an ordinary company; it is an absolute anomaly. Most companies in the S&P 500 are fighting for 10%. Here we are talking about several times that amount, and then the gross margin is 71.1%.
That's exactly what Terry Smith means when he talks about castle moats. Nvidia sets the standard for the entire AI industry. Broadcom. Wow, this isn't a tech company, it 's an M&A machine. 77% gross margin. That's pure market power. Sure, ROCE is just under 19%. Not quite on par with Nvidia, but absolutely solid for a consolidator.
They integrate acquisitions until the margin is right. That's stoic. Smith logic in its purest form. The EBIT, at almost 42%, is a monster. They know exactly where they need to cut costs to secure the cash flow for the next deals . Microsoft. Well, the absolute gold standard. Check out the ROCE. 26.6%.
Constant. Robust. This is exactly the company that allows Terry Smith to sleep soundly at night with almost 71% confidence. Microsoft is no longer just a company; it's a digital infrastructure without which the planet would simply stop. Meta. Well. Mark Zuckerberg completely turned things around. Look at this gross margin, 82%.
That's absurd. This is the epitome of a tollbooth for advertising money. Sure, the ROCE is 25.7%. Phew, despite the billions invested in the metaverse, the core engine remains extremely efficient. Adobe. Phew. Look at this gross margin, 89.4%. This isn't a company, it's a license to print money. Well, this is a real tollbooth for the creative industries.
The ROCE stands at 49.3%. That's massive. Despite all the AI panic in the market, which has sent the price plummeting over the last 12 months , the fundamental foundation here is absolutely rock solid. AppLovin. Phew. Look at this efficiency data, 70.1% ROCE. That's completely insane. This is no longer a company, it's a digital advertising torch system.
Well, the gross margin is 88.9%. AppLovin is located directly on the data highway for mobile gaming ads. Autodesk. Well, look at that gross margin. 92.3%. That's absolute madness. The company controls the entire construction and design sector. Anyone still planning without their software is building in the Stone Age.
This is a classic gorilla with a moat made of reinforced concrete. Clear. The ROCE is a solid 27.2%. Phew, absolutely fine for our system. Intuit. Well. The tax and accounting authority for anyone who earns money in North America. 80.9% gross margin, that's an absolute tollbooth. Anyone using QuickBooks or TurboTax will never get out of it .
The switching costs for a company to change its accounting system. Phew, that 's a total horror scenario. That makes the thing a gorilla. Sure, the ROCE is 21.4%. That's solid. That's Smith level. Predictably generates stable cash flow. Mercado Libre. Well, the gorilla of Latin America. E-commerce, payment, logistics – these are what build the entire ecosystem from the ground up.
A ROCE of 22.8%. Phew. That is absolutely remarkable in a region with so much economic headwind . That is true economic strength. Clearly, the market is looking at volatility and currency risks. But look at the market power. In her field, there is no serious competitor who could truly dethrone her. That's the moat Smith loves because it's not just defensive, but offensive as well.
Palantir. Phew. Our Tornado is in storage. This is not a normal software company. This is a black box for intelligence agencies and the world's largest corporations. Look at this gross margin. 82.4%. That is pure power. Sure, the ROCE is 18.3%. Well, for a tornado that is just beginning to unleash its full potential, that's an extremely stable foundation.
We have dissected our portfolio. Broadcom, Nvidia, Microsoft, Meta. All gorilla monopolies. And you know what? The portfolio passed the Terry Smith test with flying colors. We have the quality. We have the margin. We have the castle moat. Clear. From now on, we're going to relax and do nothing . We don't need a Limuren panic.
Elliot Waves? Well, that's like reading tea leaves for people who do n't know what real cash flow looks like. Iran crisis, oil price shocks, geopolitical saber-rattling? Phew. Our companies have tollbooths that simply sail through such storms. The world out there is losing its mind because the market flutters by 3%.
We know what we're holding. These companies will make their profits whether the price of oil is $80 or $120 today . That's the difference between hoping and knowing, clearly. One last disclaimer. This is not investment advice and is not a call to buy or sell shares. This video is for educational and informational purposes only.
Remains stable. Leave a like and if you don't want to miss any more Gorilla analyses , then subscribe to the channel. I wish you a wonderful and successful day.
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