Back in late February, Fundsmith held its annual shareholders’ meeting with portfolio manager Terry Smith. A video recording of the event can now be found on YouTube.
Lacking the time to watch the video (it’s over an hour long)? Don’t worry. Here are five key takeaways from this year’s event.
New holdings
Let’s start with the stocks Fundsmith bought and sold in 2022. It purchased four new stocks for his fund: software company Adobe, weighing instruments specialist Mettler-Toledo, elevator manufacturer Otis, and tech giant Apple.
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Meanwhile, he sold five stocks throughout the year: Johnson & Johnson, Starbucks, Kone, Intuit and PayPal.
Why Terry Smith bought Apple stock
At the meeting, Smith elaborated on why he bought and sold all of the stocks listed above. But the most interesting commentary, to my mind, was on Apple.
For a long time, Smith avoided Apple shares as he believed the company may go the same way as Nokia. However, he recently changed his mind, due to the growth of Apple’s Services division. This now accounts for about 25% of revenues and is very profitable for the company.
It’s worth noting however that Fundsmith hasn’t yet established a full-sized position in Apple. That’s because the stock has risen above Smith’s target price ($125 when he first started buying it).
Smith is hoping the Apple share price will come down so that he can buy more shares.
Fundsmith’s cheapest stock
Moving on from the purchases and sales, one of the most interesting parts of the event for me was when Smith was asked what Fundsmith stock he sees as most undervalued at present.
His answer? Meta Platforms: “I think it’s the cheapest stock we own,” he said.
Smith noted that Meta traded on a price-to-earnings (P/E) ratio of 15 at the time and said if the tech company was to stop spending on the metaverse, it would actually trade on a single-digit P/E ratio.
One Smith wants to buy
Another interesting part was when Smith was asked about stocks he would like to buy. Here, his colleague Julian Robins highlighted Dutch company Adyen, which provides payments solutions to a wide range of blue-chip organisations globally.
As for why the fund hasn’t bought the payments stock yet, Robins said it was too expensive right now (it trades on a P/E ratio of around 60).
Patience is key
And this brings me to my last takeaway. Throughout the meeting, the concept of patience was discussed on a number of occasions.
Both Smith and Robins made it very clear they are willing to wait for a company to trade at an attractive valuation before they invest.
One reason we have achieved what we have achieved is that we have been good at being patient with these expensive stocks.
Fundsmith Head of Research Julian Robins
I think there’s an important lesson for investors here (myself included). Ultimately, patience can play a key role in investment success.
