I second the recommendations above, before investing anything start with the FS 2021 letter to shareholders to make sure you understand their strategy and their comments on value investing. In particular the possibility that the funds are likely to underperform in the short term if there is a rotation to value.
Then regards which to buy, it depends but personally I am aiming to get to 67% FS, 33% SSON
FS contains large cap stocks and has a track record over 11 years to Dec 31 returning ~16% pa in CHF. Their strategy makes logical sense to me in terms of being likely to beat the market long term. The fund manger was successful managing a pension fund before starting FS and I remember reading he had returned ~12% pa in CHF over his investment career spanning 2008 crash. In summary I trust it a lot.
Smithson applies the same theory to small/mid caps which have historically given higher returns over the long term but with more volatility. Return over 3 years ~20% pa in CHF. Whilst I believe the strategy I am cautious about it due to the short track record
By way of illustration on volatility, FS is currently down -12% since Dec 31 and SSON -20%. Similar pattern occurred in March 2020. Because I am still accumulating I set limit orders to top up my SSON to take advantage of this
The chart below was shared in Smithson IPO document. The data is for 5 years to June 2018 during a bull market and before SSON launch so I would take it with a pinch of salt
Why would you drop it now (I assume in massive loss)?
If you believe Cathie, stock up rather than drop and forget them until 2026-27.
Your fresh new capital can go into FS as planned, but I wouldn’t realize losses just because the market turned sour (if you believed in Cathie in the first place).
IBKR doesn’t show me a price for FUNDSMITH EQUITY “T” (GBP) ACC, where would I find it? Nevermind, read their homepage and found the price. Wierdly enough the order in IBKR had to be placed in amount of money and not amount of “units” you’d like from it. /shrug
The reckoning may finally be here for Fundsmith, where the fund underperforms the markets, with two of their top 10 holdings each plunging more than 25% within a single day - on consecutive days:
Facebook (now Meta Platforms): -26% today.
PayPal: -25% yesterday.
Perhaps less surprisingly, these are both technology/internet stocks. While I do own some of their top 10 stocks individually, I never gave a thought about buying Facebook. Fundsmith initiated their position in February 2018. It’s still up about 33% as I’m typing this but that pales compared to other “consumer tech” stocks (think Google, Apple). It even did before today.
Now, hindsight is, of course, 20/20. Facebook, I believe though, failed several of their own criteria:
businesses whose advantages are difficult to replicate
businesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of return
businesses that are resilient to change, particularly technological innovation
The truth is, social networks are quite a fashionable business. Despite its global reach and user base (difficult to replicate), user interaction on Facebook must have been declining or have had low growth for at least some years. The truth is I don’t know anybody below the age of 45 who has used Facebook regularly the last couple of years. Instagram doesn’t seem a platform that can’t be easily replicated, and certainly not resilient to technological innovation. And the company can’t just snap up every up-and-coming competitor (as they did with buying WhatsApp and Instagram) when they’re controlled by a company from China (Tiktok). It was therefore the top 10 stock of theirs that I’d been least comfortable with.
I think I remember Terry Smith conceding at times that they were somewhat hesitant about investing in technology stocks, as they were somewhat out of their core area of expertise or familiarity. And this may have been one of the cases where the business’s financials may have looked nice on paper - but the writing was kind of one the wall, if you’re familiar and in touch with the user base.
Somewhat ironically, Fundsmith’s activity on their own Facebook page seems to have markedly declined after 2018, with currently no new posts after July 2020.
Will be interesting to hear their thoughts on these 2 stocks in the AGM in Feb
I am trying to keep things in perspective though: If (big if) they decide have made a misstep regards long term growth and ROCE assumptions for these 2 stocks and they decide to sell up, I guess they comprise ~10% of the fund. So we are talking a 2-3% negative impact that will be partially offset by positive surprise on other tech stocks Amazon and Google. That is significant in one year but not relative to the long term outperformance of the fund.
In addition if we talk about performance vs. market remember that MSCI world includes Tech stocks too. What FS does is try to bet on the horses with better Quality metrics - but I guess they may not always get it right
Holding PYPL through the drop has not been a good experience so far. But I personally still believe in PayPal’s potential, being the market leader and hoarding a huge amount of cash.
Facebook - well, I don’t believe the metaverse transformation, I personally think that’s fluff and could hurt more. I understand how Zuck wants to find the “next big thing” and this is what Alphabet’s been doing on their “other bets” bucket. But the metaverse (whatever it is) shouldn’t be their sole focus. We’ll see. FB is debt free and hoarding cash at an ever growing rate, so as a Shareholder, I’m not worried much.
Personally, I can’t imagine daily life without Facebook for private individuals as well as small businesses. And about 3 billion people probably agree to this. Now they are punishing the stock for not growing beyond 3b MAU. Well, I guess they ran out of population.
Instagram and TikTok don’t convey a meaningful platform for discussion (I think), and apart from this I think TikTok might be a cyber risk as well. FB could be monetized much more - with the marketplace payment system for example. Too bad their crypto bet on Libra has folded.
I’m personally DCA-ing the dip downwards on both of these tickers and will be excited to see what Terry has to say if he changes his heart.
the Apple changes with regards to ATT also impacted FB… more so than Google and Amazon (that also has a nice ads business now). FB’s data is mostly non-1st party data which is the real problem.
I tend to agree that FB is “necessary” but there is user attrition (I deleted the app off my phone just as an anecdotal example). the levers they do have are monetizing whatsapp
interesting to watch… personally I was not excited to see FS add FB to the portfolio even if it is hugely profitable and has a ton of cash. I would much rather see Amazon in the portfolio - they have so much more levers to pull and AWS by itself will continue to provide cash for a long foreseeable future IMO
IOS is only 25% of the global pie. As long as Google is living off user data and will not block it on Android similarly to what Apple does with IOS, they’re impacted, but it’s not a game changer (yet).
do you have a source for iOS only representing 25%? Genuinely curious
When you look at Google’s earnings this past quarter it’s clear they benefitted from ATT and FB suffered. FB even explicitly said this in the earnings call. As they say advertising doesn’t disappear, it just flows to the places with better ROI.
I typed “ios share of Facebook users” into google:
“81.8% of Facebook’s mobile users aged 18+ accessed the platform via an app on an Android device in July 2021
14.8% of Facebook’s mobile users aged 18+ accessed the platform via an app on an Apple iOS device in July 2021
3.4% of Facebook’s mobile users aged 18+ accessed the platform via a mobile web browser in July 2021.”
global mobile OS market is about 25% (-30%, depends where you look) IOS, 70% Android, 5% others.
I’m not differentiating from FB app or not if 3b people use it all the time.
That said, 25% of 3 billion users is 750 million users, that’s massive.
thanks, that’s really interesting… still the impact of Apple’s decision has hurt FB. Quoting from Ben Thompson’s Stratechery.
Meta (and Stratechery) has been giving warnings about the impact of Apple’s ATT changes for two years; the company didn’t fully specify the scale of the impact until yesterday though, and it’s massive: approximately $10 billion in 2022. That is 8.5% of Meta’s 2021 revenue; worse, because that impact is primarily felt through lower prices, that is money straight off of the bottom line as well, and $10 billion is 25% of the company’s 2021 profit. This, more than anything else, is what is driving Meta’s disappointing outlook.
Moreover, while Meta is piecing together ways to improve conversion tracking, the lack of precision and longevity in those signals means that it is much more difficult to leverage conversions for targeting. Meta will figure this out, in part by making massive investments in machine learning to improve its targeting; that, though, entails a big increase in capital investment, which hurts profitability even more (this does, though, increase Meta’s relative moat in the long run).
The investments to rebuild the FB moat will be significant.
As an investor in FS I hope they make it; as someone who dislikes FB intensely I hope they fail…
So it’s basically all IOS users. Unfortunately for FB stock, Apple’s been gaining some foothold recently with their security focus. I’m on the other side as a citizen are happy about this evolution of cyber privacy. FB’s been abusing every single permission they had in the last ~10 years. Google the same, by the way.
I’m all in for a blockchain-based distributed digital identity… but that’s another discussion, really
We completed the purchase of a position in Alphabet and began buying two new positions for the fund, the names of which will be revealed when we have accumulated our desired weighting. The top 5 contributors in the month were Philip Morris, Visa, McCormick, Church & Dwight and Pepsico. The top 5 detractors were IDEXX, Estée Lauder, Microsoft, Intuit and Paypal." and Meta will follow soon
From 12 noon uk time yesterday to 12 noon today, Fundsmith price decreased by… 1.5%.
This will include yesterday’s FB 26% decline but not today’s Amazon 11% increase. Amazon earnings came after the US closing bell. FS opened a position in Amazon in Oct 2021.
"The Fundsmith Equity Fund …is priced at 12 noon every UK working day. At 12 noon, we take the live prices of the European stocks and the closing prices of the previous working day for our US stocks
Article in FT 27.2.22. Fundsmith is underperforming the market YTD (benchmark is MSCI World) and is down 15%. Its focus on “Quality Growth” meant it had big exposures to some big Tech especially Meta and Paypal
“It is not a fund which aims for short term gains and it does not try to outperform in every reporting period or every type of market condition. We are focused on delivering strong returns to our investors over the long-term”. Fundsmith “is for long term investors who want their investment to compound in value over the long term. I said ‘long term’ twice in that sentence deliberately”. "
Will be interesting to see comments in the AGM tomorrow especially regards big positions in Meta and Paypal
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