Wisdom from Terry Smith + the most important investing ratio*

There’s no doubt that Warren Buffett’s annual letters are a worthwhile read for any keen private investor. But personally, one of my favourite missives comes from a fund manager who operates on this side of the Atlantic – albeit with a penchant for holding US stocks.

Terry Smith’s 2023 letter was published a few days ago and offers the usual mix of pithy opinion, investing insight and Fundsmith performance metrics.

Starting with the latter, Fundsmith’s flagship Equity Fund gained 12.4% last year, underperforming its benchmark the MSCI World Index, which returned 16.8%.

I don’t think this is too bad a result, for a year in which a big chunk of global equity returns were driven by the so-called Magnificent Seven, of which Smith owns some but not all. (The Magnificent Seven are Alphabet (NSQ:GOOGL), Amazon.com (NSQ:AMZN), Apple (NSQ:AAPL), Meta Platforms (NSQ:META), Microsoft (NSQ:MSFT), NVIDIA (NSQ:NVDA) and Tesla (NSQ:TSLA))

Importantly, Fundsmith remains ahead on a long-term view, with an annualised return of 15.3% since inception in 2010, versus 11.5% for the MSCI World Index.

Smith’s secret sauce (and my top metric)

I think that...