RWH054: Billionaire Brit w/ Terry Smith
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You're listening to TIP. Hi there, it's wonderful to be back with you on the Richer, Wiser, Happier podcast. Today's episode is one of my all-time favorites. Our guest is a legendary British investor named Terry Smith, who manages the Fundsmith Equity Fund. Since his fund's inception in 2010,

Terry has racked up an average return of 14.8% a year by investing in a global portfolio of high-quality companies that are extremely durable. Cumulatively, he's beaten the MSCI World Index by more than 200 percentage points over the last 14 years. The Financial Times describes Terry as one of the UK's most renowned stock pickers. Bloomberg, which includes Terry on its list of billionaires,

calls him the UK's most popular money manager. Terrett's success, both in markets and business, is even more impressive when you consider the odds that were stacked against him. As you'll hear, he grew up as the son of a truck driver in the 1950s and 60s in a very rough and tumble area of East London.

that was best known for poverty and deprivation and bomb damage from World War II and plenty of violence, including the criminal enterprises run by the infamous Kray twins. In this conversation, Terry talks in depth about what it took to drag himself out of that environment to the pinnacle of the investment game. You'll get a keen sense of the analytical skills, the investment principles,

and the sheer grit and determination required for him to become an investing legend. He's come a long way, both literally and figuratively. Now, in his early 70s, he lives on the tropical island of Mauritius, off the coast of Africa, about 6,000 miles from London. In his spare time there, he practices martial arts, spas regularly with much younger fighters, and will

also indulges in his hobby of building a collection of more than 200 cars. As you'll hear, Terry is a remarkable character. Ferociously driven, fiercely intelligent, charismatic, funny, charming, combative, shrewd, and I would say pretty tough. I suspect he's not the easiest man in the world to live with or work with, and I was slightly wary of him going into our conversation.

But I ended it by liking him a good deal and hugely admiring his strength of character and really the sheer resilience and indomitability of the guy. In any case, I hope you enjoy our conversation as much as I did. Thanks so much for joining us. You're listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life.

All right. Hi, folks. I'm absolutely delighted to welcome today's guest, the legendary British investor, Terry Smith, who's calling in from his home on the island of Mauritius, where he now lives. Terry is the founder, CEO, and chief investment officer of an investment firm called Fundsmith. His Fundsmith equity fund is the largest stock fund in the UK, I believe, with more than $27 billion in assets under management.

Bloomberg, which includes Terry on its index of billionaires, often describes him as the UK's most popular money manager. He's definitely one of the most successful with a cumulative return of over 600% since the fund's inception in 2010, which is roughly 200 percentage points or so better than the MSCI World Index. Terry, it's lovely to see you. Thanks so much for joining us. Nice to join you. Enjoying it so far. So far. We'll see how it goes from here.

We're off to a good start. I wanted to ask you about your early years. I've read in different places that you were born in the East End of London in 1953, and that you came from a very modest background as the son of a guy who I've read in different places that he drove a bus or he drove a truck. And my sense is either way that it was a relatively poor area that was probably damaged a lot by the Blitz when you were growing up there in the 1950s.

And I wondered if you could just give us a sense of what it was like growing up in the East End, what your family was like, and really how those early years shaped the person you'd become. Yeah, I mean, it wasn't a very nice place. As you rightly say, I mean, it was still very damaged by the war, the Blitz in particular, with lots of bomb sites. And some of the housing was prefabricated housing, which was built for temporary accommodation. And it was a very poor area. If you look at the statistics of the time for what it was worth,

In terms of educational facilities and achievement, it was the worst metropolitan borough in Western Europe at that time. West Ham, which is where I technically was, Forest Gate, West Ham is where I was. I was pretty poor. The story I always tell people just to illustrate it is I went to Odessa Road Primary School and in the very harsh winter of 1963, we had outside toilets and they froze over. And so we were sent home from school. And when I say sent home from school, I don't mean for the day. I mean, this lasted for about six weeks or something like that.

And that would have been great, apart from the fact we also had an outside toilet at home, which also froze over, so it wasn't a big help. And the house I lived in with my grandparents and my parents and my uncle and various other people was a very modest house, which has been knocked down in some clearance programs since I lived there. And it had no hot running water, and it had no bathroom, and it had no inside toilet. I mean, that's kind of where I was. And the one thing I would say more than anything else about all that is

It gives you a big incentive to try and do something better. And tell me about your parents.

Yeah, my father was, as you've touched upon already, a lorry driver, truck driver, very talented driver. You don't have to be to drive buses and lorries, but he drove other things as well. His undoing was he worked for a company embarking in Essex, which amongst other things made brake linings, which I guess was where he got involved with them. And the problem was that they used asbestos, and that was his undoing. He got...

People say asbestosis, but that's a kind of loose term. He got mesothelioma and lung cancer and was wiped out by that in due course, as was the entire shift at the place. And my mother worked in various very, very, very modest jobs. She was a cleaner. She worked in a factory making dart balls. She worked in a factory making brooms and so on. So they were, yeah, it was a very poor sort of background, frankly. Yeah.

Where do you think you got your intelligence from? Were both of your parents really smart or? My father, I think, was one of these people who was tracked by his background. He was one of 12 children, which is pretty amazing, and had to leave school at 14 and go to work. So there was no alternative but to that. But he was clearly a very intelligent man. In the time when people did crosswords in newspapers, he regularly won crossword competitions day in, day out. Every week, a book or something would arrive where he was winning crosswords. He did eventually before he died.

aspired and became a manager of a cold storage transportation facility and things like that. So he was clearly a guy who had native intelligence sort of brain power who hadn't backed the education to be able to capitalize upon it, I would say. Yeah. I often think of my grandfather who grew up in London and who left school at 12 because he was like this poor Jewish kid and didn't have, from an immigrant family, didn't have at a certain point the soul in his shoe

had worn out so much that he actually couldn't even hold it together with newspaper because there was nothing to hold the newspaper in. And so he became an apprentice tailor, but he was a world-class bridge player, which makes you realize, oh God, how much intelligence there must have been that sort of got wasted because they were just doing these menial jobs or really, really underpaid jobs. So do you feel like you've been very much shaped by that background? I mean, I know you've said before that money was important to you.

Yeah, money and just the feeling of wanting to escape as much as just money, I think. I mean, the thing that more than anything affected my thinking, which is strange, people always ask things, and there are teachers I could talk about, and my mother I could talk about as well. But one of the things was in 1968, I went to the ABC cinema in Upton Park, which is between us and the West End football ground, and I watched the Thomas Crown Affair, the movie.

As I always say, you know, Steve McQueen has a pretty good start. He's wearing several-row suits. He drives a Rolls Royce and flies a glider and plays polo. It's like… And I literally watched this thing and thought, there's another world out there, isn't there? There's just another world out there. So you think that was the start also of you wanting to collect all of these beautiful cars that had been in movies and the like? Yeah, probably. I've got that Rolls Royce, as it happens. But yeah.

Yeah, partly that. And my father as well, he was very interested in cars and motorcycles. And one of the earliest photographs I've got of me is of me sitting on my father's motorcycle. And so I could sort of ride motorcycles and drive cars and fly planes and helicopters and things from a, you know, relatively easily. He definitely had a talent for it. It wasn't just that he was drove buses and trucks. He had some talent beyond that, I think, probably. Yeah.

So now the image I have in my mind, Terry, is that you're sort of the Steve McQueen of the investing world. Well, as it happens, Steve McQueen's first name wasn't Steve. It was Terry? Yeah, Terrence, as is mine. That's interesting. I'm sure it's just a coincidence, as they say. Yeah, they named him after you.

No, no, he was born before me. I know you're a big fan of boxing and you've talked a lot about and then became I think a Muay Thai practitioner as well. Yeah, I've been Muay Thai pretty regularly. I've been to Thailand a couple of times and stayed in Muay Thai camps for weeks and trained at Muay Thai and I do Muay Thai, I sponsor a Muay Thai fighter here in Mauritius. She's actually in Cambodia at the moment. She just fought for a belt in Cambodia but

I train with her most days and I've got a gym, a kickboxing gym here in Mauritius, which I bought and equipped and gave to the coach and the kids to use. I turn up occasionally and train and spar with them. I'm a kind of a curio. I'm this old white guy who turns up. And does this grow out of coming from a relatively

tough area as a kid. Tell me about that. Well, I went to Stratford Grammar School and the school uniform was a red, it was an owl. In fact, I went past there quite recently and the concrete owl statue is still outside. And so the badge was an owl, which was on your cap and your blazer.

And I had to walk past the secondary modern school on the way home. And so I got into a fight more nights than I didn't really on the way home. If you can imagine some kid going to the sort of the local posh school as it was regarded a bit, coming home with an arrow on his head and his blazer, I may as well just draw a target. And so my uncle who lived in the house, my uncle John was amongst other things a boxer. And so after a bit of this, he said, "I think I'm gonna teach you how to fight."

And so he did. And it was something I liked. I've always liked and felt at home going into boxing gyms. So, you know, in boxing gyms, whether they're in London or Mauritius or New York, I've always kind of liked the atmosphere of going into them. I said here when I was setting up the gym for the kids, I went to see them in a municipal hall that they had where they had no facilities really. They didn't have a boxing ring and they couldn't keep their stuff there.

And I went in there and somebody who knows I'm a bit of a softie for these things took me along to see them and train with them and so on. And they said, well, what is it you most like about this? And I said, they just remind me of me when I was at their age, you know? This is their outlet. This is something which they probably look forward to every week, you know? What do you think you were like at that age? What was I like at that age? I don't know. It's difficult to... Probably...

Shy, intense, I would say, probably.

at that age? Sponge? Sponge, yeah. I read an article that you wrote, I think back probably in 2011 when Smoking Joe Frazier, the great boxer, had just died relatively young, I think 67 of liver cancer. And there was a beautiful quote there where you quoted George Foreman saying, I kept knocking him down and he kept getting up. After six times I was awarded the championship of the world, he was still trying to get me when they stopped the fight.

And I was wondering, that seemed to me, there's something about that resilience and determination that clearly resonates for you personally.

Yeah, I much admire people like that. I mean, people, obviously, Ali, certainly in that era, was regarded as fantastic. And he was, but he probably wasn't the greatest professional heavyweight of all time. I think Joe Lewis and Rocky Marciano got better records. He probably wasn't the greatest heavyweight of all time. Teofilo Stevenson, the Cuban amateur, had a fantastic record as well. But he was a huge global person. And in so being, he needed, and that's why I tried to bring out the article, he couldn't be that on his own. He needed to fight other men.

And Foreman and Fraser in particular, but also Ken Norton and some others, if he hadn't had those, he couldn't have been great like that. But those men that he fought were different to him because if they weren't different, it wouldn't have worked. They need to be different styles to engage the enemy. And one of the things that I think it brings out is that your enemies and those you engage with shape you.

The way that you engage with them and so on, it shapes you. One of the common thoughts that people have on Smoking Joe was that he was a slugger and so on. He wasn't. He wasn't that.

If you look at the analysis of the first fight, the fight of the century in Madison Square Garden, where he knocked Ali down and broke his jaw, Eddie Fuchs, his trainer, had trained him very specifically. He worked out that Ali couldn't throw an effective uppercut and was vulnerable at that point. And so he said, whenever you get with him, range your frog.

And eventually he caught him throwing this up a guy. And it was just a piece of Eddie Fuchs because boxing is, you know, people think it's just violence. But no, there's a fair amount of analysis goes into successful boxing as well. Eddie Fuchs trained four of the five men who beat Ali. It's probably not a coincidence. Probably not a coincidence. When I think of your life, and we'll get into this obviously a lot more as this conversation unfolds, there is something about you.

your reputation as being this kind of combative guy. And there's also something I think just in terms of the drive and the grit that it must have taken for you to get out of the East end of London and become a billionaire and be as successful as you've been. When you think of yourself, like does the image of you as a sort of, as a fighter, as someone who's kind of defiant, is that sort of your combative and determined? Like what's your own image of yourself?

I don't really see myself that way. I think I'm a big softie, actually. I really do. And I think I am in many respects. I think a lot of people who know me well might tell you that, as opposed to the public image that people have got. If you look on my...

on my WhatsApp where you can put a phrase. I've got a phrase up there. I like movies, by the way. Apart from the Thomas Crown Affair, I finance movies a bit as a hobby. It is a hobby. It's not really an investment. I have movie night once a month with friends. I've got a little private cinema and run that in, et cetera, et cetera. The quote is from the cult movie Assault on Precinct 13, which not many people will have heard of now, but it's about a

a convict who's on the way, I think, to death row and he's been in a bus. The bus gets diverted to a police station which is closing down and there's some suspect in there who's been involved in a clash with the gang and the gang come and attack the police station to get him and of course it ends up with the convict, a girl and a policeman fighting for their lives against all this and

At one point, the girl says to him, what I can't understand, she said, is why you didn't take off because they sent somebody out to get help. Why didn't you take off down that drain and just leave it? Because then you could have escaped. And he says, there are two things in life a man should never run from, even if it costs him his life. One of them is a man who's helpless and can't run with him.

And I like that. I like that approach, basically. And I don't think it's not, it's a somewhat more selfless approach, I think, than the one that people might think that you're talking about portraying there. Of course, the quote ends, people think that the quote, which ends there, one of them is a man who's helpless and can't run with him. And the quote ends there and they say, well, you've only got half the question. And the quote does end there because the girl says to him, what's the other one? And he just looks at her. The tooth of brotherhood. Ha, ha, ha, ha, ha.

I'm a big softie, really. Yeah. Well, I mean, as the great poem said, we contain multitudes, right? I mean, you can be a softie and also be pretty tough. Sometimes, yeah. Yeah, I think that's right. And I would say it's a bit like that. It depends upon the circumstances and the situation and who I'm with and what I'm doing and lots of other things. But you don't get out of where I was to where I am automatically.

without a lot of determination, obviously. Yeah. My classmate who is my best friend in school, I'm still in touch with him, but I'm in touch with both him and the guy I sat next to when I was five, which is interesting. And he assures me that out of the sort of the boys in our class, the only two who are at liberty and not dead are me and him.

Really? Yeah. He kind of, because he stayed in London and kept in touch a little more than I did. He sort of says, you know, the only two guys who were left alive and not in prison. That's amazing. That's amazing. So did you have great role models in those years? I mean, was there a teacher or an athlete or someone? Or people you knew who invested or did well in business? Was there anyone you looked to and you thought, beyond the movies, let me be more like them?

21 in business, so I mean, I couldn't possibly have started there. I mean, business wasn't something I encountered other than doing various menial jobs until I was in my 20s. I had a good primary school teacher, Mr. Whitehouse. My last year in primary school, he basically, you know, I guess if you said, what did he do, if anything at all, he probably gave me help, impetus, if you like, to pass 11 plus and get to the best grammar school in the area.

I remember him fondly, fondly, although he was quite tough sometimes, you know, I mean, this was an era of corporal punishment, you know, I mean, he was quite tough. And then when I was in secondary school, Dennis Blow, my history teacher, who, bear in mind, nobody in my family had ever been to university, right? So, you know, getting the grades and going to university was a process of applying for university, which nobody, I couldn't go home and say, what do you think I should do? It wasn't going to work terribly well.

And so he kind of helped me with that. And he was a history teacher, and he's the guy who more than anybody else kindled my love of history. And I went and did a history degree at the university that he himself had attended.

And that was a big help when I think about it. I could have done other things at other universities and people said, "Oh, you could have gone to Oxford, Cambridge, you could have done this." But I'm very happy that I did what I did because I had his sort of help and support in thinking through that process in doing it. And lots of different things. Going back to the grit and determination, my mother. My mother was the kindest person I think I've ever met as far as I know. She never harmed anybody. She would be mortified if she harmed anybody. The sort of person who, I mean, obviously, we're dealing in a different era in terms of going into shops and buying things.

If she came out and the shop had given her too much change, she would be back in there giving it to them. She'd be mortified by that idea. Her kind of what people would now call moral compass was quite an important thing, I think, as well, in terms of how she treated people, I think. My Uncle John, who I mentioned earlier, he was a boxer and sometime villain. He was a good guy.

What sort of villain? A villainous villain. I mean, this was the East End of London. The Krays ran the East End of London during this period. He was a guy who was involved in operations of that sort. Yeah. Interesting. Very interesting. And so then to get back to your trajectory of your career, so you had gone to Stratford Grammar School, this very good school. And I think I'm right in saying you won the physics prize. You were obviously a smart kid. You

You went to the university in Cardiff to study history. I think I'm right in saying you got a first-class degree, graduated in '74. And then you went off and got a job at Barclays, and you spent a few years, well, you were there for nine years, right? Starting around 1974. And it was not glamorous when you started. I mean, you joined as a graduate trainee and ended up becoming a bank manager. Can you talk about those early years at Barclays and

How it sort of shifted you into a different world and different way of thinking about the world. Again, we'll talk about mentors a bit probably. But I chose Barclays. I mean, I didn't know what I wanted to do when I left, when I was in the university. So I went to all these so-called milk round interviews where companies come and I was interviewed by the Metal Box Company, by Unilever, by Marks and Spencer's, by Barclays, by NatWest.

All these companies and how to make a decision. I made it on the, you might consider perverse basis of the one that gave me the toughest interview. I thought, "Yeah, I'm going to go with that guy called Roger Brocklehurst." I remember him well, gave me the toughest interview. I like these guys. So I went and worked for them. It was a training program. They put me through courses on everything you can imagine, law, accounting, et cetera, credit, through all that, which is very good.

I always say to people, people ask me for career advice, I say, get a job, take all the training courses, number one. I think it was Lucy Kelleway writing in the FT said that the dot-com era, the gig economy, and the digital age have done great disservice to some young people who just want to start a business. Now, go and get some experience first. Go and get some training first, then have a think about all that. So I did all of that. And then

Barclays had nearly gone bust in the 73-75 secondary banking crisis and their own management accounting was lamentable. I mean, they had none. Basically, they had audited accounts which were produced three months after year end. You could look at them and see the balance sheet and the income statement and cash flow. But actually having a budget and monitoring against budget and working out what your exposure was to assets and liabilities and interest rates and

Nothing. I always say, when I discovered this, I said, "We would never have lent money to a company with our level of management information." Anyway, what they did was they grabbed me out of what I was doing in training for commercial banking and sent me off to do an MBA. They sent me to Henley, to the management college, and I did a very peculiar or different kind of MBA, one with different… You did three months in classrooms, three months in a company, three months in a company, and I did that.

across different businesses and learned a lot of different things like production engineering and human resources management and all kinds of stuff like that, manpower planning with different organizations. And they hadn't told me this, but they were going to form a finance department. So they had a guy called John Spencer who'd been with Pete Marwick, and they made him head of the department. They made a guy called Derek Van Der Weer,

as the first sort of CFO really. This guy, John Spencer, who I'm still friends with to this day, friendly with to this day, still work together with to this day after nearly 50 years. And a guy from Slater Walker, which had blown up very recently, the Jim Slater acquisition firm, me and a couple of other bosses said, you're the finance department.

And what did we do? We wanted to create this management accounting, management information, budgeting, forecasting, planning thing from scratch. And so I got to sit there and do that for the next three or four years. And that was great. And I had a good boss insofar as he was a good mentor.

And he really liked to go sailing. And I got one of those deals, which I think you do get sometimes, which is I did his job when he was away, which meant he could go off for six weeks and go sailing. And so I learned an awful lot. I got an awful lot of early responsibility doing that. So I was basically the

The manager straight underneath the CFO managing the bank's finances, if you like. What do you think you learned by looking under the hood? Because obviously, I mean, this has been part of the key to your success as a stock picker is that you understand the accounts. What did you see by actually being on the inside and looking under the hood?

Loads of things. I mean, lots and lots of things that you see. I mean, one of them is cash flows and profits are completely different things. I mean, they are clearly related. Accrual profits or accrual accounting is a way of spreading cash flows across reporting periods. But, you know, you can have plenty of profits and go bust. It's, you know, it's the two things that not that, you know, that you've got to be very careful with businesses that require leverage or borrowing in order to function, which banking does, right? Because the margins for error are

in terms of success or failure are very slim at that point. When you're on 20 to one leverage or something like that, it doesn't take long to go bust. Really, you can do it quite quickly by taking risks in that regard. So lots of things I've been doing. In the course of doing that job, in those days, the investor relations industry, which we've now got where companies have IR offices, didn't exist. There was no such thing. Nobody had one, not even one. So what would happen is these people called brokers analysts would ring up

and they would ask for the finance director who didn't like taking their calls. So he put them through to my boss, but he wasn't there, so me. So the phone would ring and it would be a bank analyst working at a stockbroking firm in London or New York, whatever,

Who would start questioning me about the results or the forthcoming year and what was going on and where we were positioned in relation to property lending or less developed country lending or whatever. And I dealt with all these people and that was fine and learned quite a lot from them about how the market viewed us over time. And I had investors who would come in as well, you know, from Capital Group and people like that. And they'd come in to interview and I would tell them about that.

And then eventually, one of them said to me, "You're wasting your time. You know that, don't you?" And I said, "What do you mean I'm wasting my time?" He said, "You're going to do very well." I said, "Yeah, they've told me. I'm on the fast track up towards the board possibly or something like that one day." And he said, "I'm absolutely certain." He said, "But you're just going to have a career and you're going to be quite an important guy in a bank and then that's going to be that." He said, "I think you should come and work in our industry where the rewards are much greater. You

Obviously, if you fail, then there's not the same sort of parachute that you might get in your job here. He said, "But I don't think you will." And he said, "You're far more like you. This is a partnership. You'll end up being your own boss." He said, "And I think you get it." And I said, "Oh, okay." So I quit the bank and went off and became a bank analyst.

much to the shock of everybody involved, who increased the managerial turnover by literally 100%. People don't quit and go off. I said, "Well, no, I'm going to be a bank analyst." And I went and I joined a stockbroking firm and I became a bank analyst. - So you went off and you became an analyst, I think, first at a company called W. Greenwell & Company, and then you ended up at Barclays Dezoit Wed, which was where you were until the late '80s.

There's a famous story told about your time there, I think about a week after you joined as a banking analyst that sort of cemented your reputation as someone who would speak your mind even when it annoyed the hell out of people in positions of power. Tell us what happened. It wasn't actually a week after I joined. I mean, I joined sometime in the summer of 1986, just before Big Bang in London.

And then I wrote a piece on the bank, a piece of research in the run up to Christmas and left it for publication. These are the days when you left it in the publication department, ran it out and mailed it to people. And I went off for a holiday. I can't remember where I went. And so I said, I'm going away over Christmas and New Year. And I left my number two in charge of everything. I've got this research. Anyway, he went out for a lunch in the days when people did go for a lunch.

with the FT banking correspondent and gave him a copy. And of course, on the first working day of new year, there was absolutely no news anywhere in the financial world. So the front page article of the Financial Times says, "BZW says sell Barclays." And of course, I mean, everybody went completely crazy about this. Yeah, that wasn't allowed. People didn't put out some recommendations generally. Anyway, you're doing it on the company there. And I said, "Well, yeah." And they go, "Look,

Through gritted teeth, the management of Barclays said, yes, it is absolutely wonderful. It proves the independence of our investment banking subsidiary. And the boss said, I think you're going to have to leave because you've got no career here now. And so I left. And that was that. You know, I guess, you know, I've kind of not for the first time I've reclaimed the moral high ground a notch too high for people's comfort zone.

I've got to say, looking at what happened subsequently with Barclays, I was right because this was '86. And by the turn of the '80s into the '90s, they ended up cutting the dividend because of the size of their property losses. I was talking about their inability to lend without incurring higher than average bad debts was basically the thesis I was putting forward.

So then there was an even more dramatic reprise of a similar story where you end up at UBS Phillips and Drew. So in 1990, became head of UK company research there. And for people who don't remember this firm, it was a pretty prominent investment bank and stockbroker and asset manager in the UK. And I think Phillips and Drew had been founded in like the 1880s and then acquired by UBS. And so-

You come in at an interesting time, right, where there are all these companies like Polypec and British and Commonwealth that were going bankrupt while seeming to be in good health. And you wade into this with your usual delicacy and gracefulness and tact. And do what? Tell us what happened.

I probably did show rather more tech than you're giving me credit for. So I, together with the guy who was a transport analyst, I've worked with him on it. I said, why don't we write a piece of research about why this is happening? Why we've got companies which are reporting record profits and going bust six weeks later, big companies, right?

And so we wrote a research paper, 20, 30 pages long, which looked at 12 methods by which companies cook the books, right? That they managed to report profits that didn't exist or profits without cash flows or got liabilities out of partnership. And we wrote that. And it was, for what it's worth, voted the best piece of research published in London that year by the sort of Reuters. You need to back up a bit. Why was I hired by UBS? They'd been involved in a thing called the Blue Arrow affair shortly before they hired me.

Blue Arrow was a UK shell company run by a man called Tony Berry, who owned Spurs, I think, for a while, the football club. And he used that to bid for a company, a much, much bigger company, because this was a shell company called Manpower, a temporary services company based in Milwaukee, Wisconsin.

And it was a huge acquisition. And they did a 750 million pound convertible, which sounds quite a lot of money. But try and think back to 1989 in terms of the size of that deal. It was done by the lead banks were Barclays and NatWest, so BZW and UBS and NatWest.

And the issue was a complete flop because the deal was a complete lemon. And instead of admitting that they were stuck with the £750 million, they put it on their market-making book, which was exempt from disclosure. Now, this was regarded, when it became apparent, as a bit of a foul by two people. One was the institutions, because a few of them had bought these bonds, not very many, but they thought the whole issue was sold because they published newspaperer.

sort of advert saying, "Successful issue, triumph." And they felt a bit of grief, so they stopped dealing with people like UPS over it, and the regulatory and police authorities who went and arrested the CEO, the head of research, the head of trading, and the head of sales. And so the headhunter rang me up and said, because I'd been a bank analyst for a number of years successfully, seven years I think I've been a bank analyst.

I'd like to do something more. I'd like to do something looking at the whole market, because there are wider scope of things rather than doing banks forever. I think I know quite a bit about banks. I'd like to do something new." And so he rang me out of the blue and said, "Look, UBS have got a vacancy because of these arrests. They'd like to hire you." And I sort of said, "Oh, okay, fine. I'll go for that." And I sort of said, "Well, what do you want out of me?" And they said, "Well, obviously, we want to be profitable. We want you to reclaim the moral high ground with the institutions who

It comes back to the visa, though. You've got this reputation for telling things how they are, and we'd like you to use that to rebuild our reputation institution." So I said, "Sure." So I published this piece of research, and that was all very well done, and so on. Then I got a phone call from somebody at Random House, the publisher, and said, "We think that we could sell a book if you could write a book. Could you write a book based on that?"

So I went to the UBS management and said, "I've had this approach. I think it might be a good idea because you're trying to do this more high-grade stuff." And they said, "Yeah, good." I said, "And I think this will be another feather in our cap to doing that. What do you think?" They said, "Yeah, if you want." So I said, "Do you want the book to be UBS's book or Terry Smith's book?" They said, "Terry Smith's book." I said, "Fine. Okay." So I wrote the book. And of course, the thing is, people have written other books on creative accounting in the past, but not the first one. By any means,

But if you look back to some of those, they use company A buys company B and I actually use real companies.

And when we got towards publication, the publisher said, "You've quoted annual reports in there." I said, "Yes." He said, "I think you need to write to all the companies and tell them that you're using that in case they wish to claim copyright." I said, "It's a public document." And he said, "Write to the company." So I said, "Okay, fine." So I wrote a letter to all the companies saying, "I'm Terry Smith. I'm publishing a book on accounting. I'm going to quote from your 1988 annual report. I hope that's okay. Let me know if it's not."

Of course, having seen who I was, a couple of the companies realized what was about to happen. And the next thing I know is I get called in by the chairman of UBS who says, we're going to stop this book, aren't we? I said, I don't think we can do that. And there was a sort of, I don't think you've understood what I just said. I'm telling you to stop the book. I said, I think you find the book's mine, not yours, because that's what we agreed.

"Okay, I'm giving you the instruction, do you go and tell them?" I said, "What reason should I give them? Well, there's going to be a huge row over this." And I said, "So I'm going to tell a publisher," note the connection between the word publicity and publisher, the same verb, right?

that he's got a book on accounting, which he thinks is going to sell about 5,000 copies or something like that. But now there's going to be a huge part. I said, have you come across a book called Spycatcher that Mrs. Thatcher tried to ban? I said, it's mainly about a guy who was in MI5 complaining about his pension. I said, but it's sold out. What are you trying to say? I said, we're telling you we're going to fire you and sue you. I said, okay. And so I got fired and sued. The book got published. The publisher regarded this as the funniest thing he'd seen, the best thing he'd seen for a long time.

stopped the press long enough to put across the corner the book they tried to ban. It's amazing. I mean, you got suspended initially for quote-unquote gross misconduct. Then you're fired. They sued you. So as I understand it, you had to settle out of court after about 18 months. But the book was number one in the bestsellers. I mean, it knocked Stephen Hawking off. You are the Stephen Hawking of the investing world.

I'm going to try and tell you how it is. Okay. But yes, it did. But clearly, it wouldn't have done that. I mean, you know, some people might have read it and regarded it as quite... And the interesting thing is, I think it has stood the test of time in a number of regards. I think that's a more interesting reflection. 40 years, over 40 years later, the

They're over 30 years later, 35 years later. There are examples in there which stand the test of time. The one on pension fund accounting, I think, in particular, stood the test of time in there. So I think it was an okay book. I don't think we'd have sold hundreds of thousands of copies without them trying to stop it and sue me and things like that. Yeah.

And in many ways, it made your reputation as somebody who was candid and had integrity and had the courage to tell it like it is. But also, it seems relevant that everything you did was based on a real understanding of the accounts, of the finances, which seems to have been... I mean, it sounds so prosaic, but that's kind of been one of your competitive advantages in an industry where most people don't seem to bother.

I can give you as many examples as you prepare to listen and record to of where we know that people in the industry don't read the accounts. We have the accounts for a reason. They look at management slideshows and all kinds of things. How about reading the actual accounts? There are lots of examples of this. We had one on IBM. We looked at IBM in 2010 and rejected it, wisely so as it turns out, as a stock.

When we were doing it, we found that I need to go look at the numbers, we found a $2 billion error in the cash flow statement for the last year. And so we sort of rang up the IR department and said, "Look, we're these guys, we're doing this, we're looking at that, we just got to ask you something about your accounts. There's this number in here that we can't make this work." And they said, "The usual, we'll call you back." And they said, "We've been in touch with the finance department, you're absolutely right, the cash flow is out by $2 billion."

Anybody else rang up? I said, no. And I don't think it's because other people have discovered it but couldn't be bothered. They haven't read it. It's like, oh, okay then.

It's very interesting. I mean, so it seems to me, I mean, just in terms of keeping score for our listeners and giving them, and viewers, and giving them a sense of some of the morals here. I mean, part of it, obviously, as you said before, is an emphasis on cash flow and due diligence. And part of it, it seems to me, one of the great lessons of your career is just focusing on economic reality over reported earnings. Yes, definitely.

I think economic reality is if you read what we do at Fundsmith, and I would be confident you probably have been preparing for this, we talk about companies with high returns on capital and high gross margins and great cash conversion and growth and so on. But when we found those, and I mean, anyone can find those going through looking on Bloomberg or another data source to find them.

you then have to pause and ask yourself a very important question. How do they do that? What's the economic reality as you say? What product or service are they selling to people that enables them to generate good margins, that enables them to get good returns on capital, enables them to convert profits into cash, but keeps competition somewhat at bay? What do they actually do

And I mean, you do get investments in companies, particularly in the modern era where people buy all kinds of stuff without understanding it, just on the basis of them mentioning AI. Oh, right. Okay. What do they actually do? And it's amazing. I mean, we've for years have maintained this. People have latterly, I think, come to believe it a bit, but if they actually speak in gobbledygook, it's not a good sign.

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All right, back to the show. There's a big chunk of your career that I'm sort of leaving out here that maybe we'll come back to later where you were running public companies. But since you bring up Fundsmith and it's so relevant to our discussion here, let's dig in more to what it is you do here at this firm that you founded back in 2010 and that's become a kind of

a really great emblem for what I would call the art of quality investing, which is a phrase you use in the introduction to your book, Investing for Growth, where you describe your approach as quality investing. There's a lovely phrase in that introduction where you talk about seeing an ice cream van that has an advertising slogan on the side, which is, it's quality that counts. So this is sort of at the heart of what you do.

Tell us about the attributes you're looking for when you're trying to identify these high-quality companies. In financial terms, we're looking for a higher return on capital employed. Let's start with that. Warren Buffett said it's the single most important measure of performance in his 1979 annual report, for what it's worth. He seems to have done quite well since then, so probably we should listen a bit.

It is, because if you invest with me, you want to know what return you're going to get. You're going to put your money in the bank, you want to know what return you're going to get, buy a bond, you want to know what interest rate yield you're going to get. When people invest in companies, they kind of ignore that. No, you're buying your portion of their capital. What return do they get on that capital? That's question number one.

Because there's a great Charlie Munger quote, which is, "Over the long term, the performance of your shares, if you hold them for long term, will start to gravitate towards the return that the company generates." And he's not putting forward a theory here. It's a fact.

And so we look at return on capital employed, and people look at all kinds of other earnings growth and so on. If you're prepared to give me access to capital, either by you sending me more or me retaining your earnings, and you ignore the return on capital employed, I'll generate earnings growth for you at lower and lower returns, which plenty of companies have done at the top. See Tesco for details, right? It's like, oh, it's a disaster, right? So we look at return on capital employed. We look at gross margins. We look at the difference between sales revenues and cost of goods sold. What do they mark things up by?

Because companies take stuff in, they take in components, ingredients, services, labor, and they put a markup on it. And again, in normal life, you go into a shop, you can imagine them having a markup. Well, all companies have that markup. What is it? And the size of that tells you a lot of things. It tells you about their pricing power, their brand strength. It tells you about their defenses against inflation if the cost of goods goes up.

We obviously look at profit margins, but most people do. We look at cash conversion and what percentage of the profits arrive in cash. Is it 100%, 80%, 120%? There are companies that make more than 100% of profits in cash, usually by the method of paying people more slowly than they get paid. And that's beneficial, fairly obviously, because cash is the only thing in the end. You can pay the dividend with various things like that.

We look at a raft of financial metrics for these companies. And every year we give that to people in terms of our portfolio and how it looks and how it looks against the indices and so on and so forth.

And then as I say, we start looking at things like, well, what do they do? So it all looks good. Do they have brands? Do they have control of distribution? Do they have intellectual property? Do they have an installed base of software or equipment that they service and sell spares and so on and upgrades to? How do they do this? We've got to have an understanding. How do they get to those numbers? What drives them to get to those numbers? What drives them

Then we look at things like the management, not in the sense of are they good managers or bad managers. Traditionally, what most people mean by that is they have a meeting with them and how did they come across. I've met people who can present brilliantly but are bad managers and people who can't present to save their lives who are very good managers. No, no, no. Let's get to the nitty-gritty of talking to these people and ask them all the usual questions. What's happening here? What's happening there? What's happening in that product and in this region?

What we really want to know is every year you have this company that produces this return, these profits and cash flows arrive. How do you decide whether to give it back in a dividend, buy back shares, invest in the business or buy things? Those are your four basic choices, two of them are obviously subsets of one, which is giving money back. How do you decide between those? And we're looking for people who've got a grasp of how that works and what they do, which is honest,

and that matches something like the way that we think. So they go, well, actually, I mean, I've met managers, I've done projects for managers in public companies over years where they say, my stock's undervalued. Oh, no, you're busy acquiring things. Yes, yes, buying lots of things. Why don't you buy your own stock? What? Why would I do that? I'd shrink. But surely the company you know best is not the company you're acquiring, it's the one you've already got. You must have done that pretty well, yeah? Yeah.

And you're telling me you think it's undervalued. By the way, I've checked. I think you're right. Why don't you buy those?

No, no, no. You're looking for people who've got an honest and intelligible approach to that as well. So great financials, how do they do it? People who are honest and straightforward and intelligent in their application of this. That's it. When you're interviewing management and you're trying to figure out whether they're rational in the way that they allocate capital, what do you find helps in terms of your meeting style? Is it better to be charming? Is it better to be combative?

What actually works for you when you're trying to figure out whether these guys are rational in the way they think about allocation of capital? Usually, it's to try and start with going down the route of trying to get them to talk about how they view it without giving them too many clues, as it were. Something like, "How do you decide your priorities?"

Don't say, "Well, you could do this, you could do that, you could measure that." No, no, don't give them a roadmap. Just leave it as… Obviously, you want to point them down the route of talking about this, but you want to point them down the route of talking about it with as few signposts as possible to see whether they've actually got a framework.

Sometimes I've got a framework. I mean, it may surprise, we're not usually all that combative. I mean, we are with people who we think in the end are trying to dupe us or just not listening to what we're trying to tell them, particularly if we own quite a lot of their shares. We will become, like we did with Unilever in the end, it's kind of like, guys, we will become competitive because we've owned these shares for a long time. You've completely ignored us. You're ignoring us now, and we don't think you should. And you're treating other people who've

who arrived in the last five minutes better than us. So we'd really like you to focus, and we will become competent. Like, you know, they say, oh, we've got an active investor and we've invited him on the board. And it's like, great, you know, but I don't want to go on the board. I would turn it down if they asked me, not that it's ever particularly likely, but why are you doing that? Right? Why? I'm trying to get them to the point.

And we can get you managements who will give you, I don't think you want it probably, but we can get people, managements who will give us a reference and say, "Bondsmith turned up. They did all this in talking about our business. They bought a big stake. Then we had an activist who said, 'We've got to cut costs. We've got to split the business. We've got to do this.'" And not only did they vote against that, but they talked to the proxy voting agency and said, "I think these people are wrong. What they're going to do is injure this business."

I mean, we will actually stand alongside them and fight for the business if we think that someone's doing something wrong in that regard. So far from being competitive, sometimes we're their best friend.

One of the things that's very striking about your portfolio is that obviously you have a lot of these very well-established self-financing businesses with these high returns on equity and durable competitive advantages, very much Buffett style companies, but a lot of them are really old. I mean, I remember you once saying that the average company in your portfolio was founded in 1883. I don't know if that's still true.

No, no, I think it's about 100 years now. It's 1920-something, I think. Yeah. That's extraordinary. Can you explain that? Because we're in an era where so many people are just obsessed with the new technology, right? And AI this, and biotech, and drones, or whatever it is. And here are you focusing very heavily on 100-year-old companies. What's going on here? Because it's not that you're ignorant about technology.

No, but mostly winners keep on winning. It's kind of the way the world is. The Stern Business School in New York produces a table, I think they produce it annually, and it's good or bad companies. And what they have is companies by sector, and there are thousands of companies. So they have the sectors, so there's consumer staples, consumer discretionary, and pharmaceuticals, and healthcare, and mining, and minerals, banking, all these sectors.

hundreds and hundreds of companies each one. And they do a very simple calculation of whether a company creates or destroys value for the year that they're looking at. But they've got the data over many years.

And what they look at is the return on capital employed, the Buffett thing that he focused on in '79 that we focus on, less a guess at the weighted average cost of capital. People get their knickers in a terrible twist about whether it's a guess, right? The exact number doesn't matter. And so they take off a weighted average cost of capital and come, is it taking in money at a weighted average cost of capital and making a positive spread, in which case it's creating value, or is it making a negative spread, in which case it's a machine for destroying value? And then they show you the sectors. Let me tell you.

Almost every year they do it. You go, all right, so the good companies, the ones creating value are the consumer staples, consumer discretionary, healthcare, information technology. And then what's all the bad stuff? Oh, it's banks, real estate, insurance, heavy engineering and manufacturing, mining and minerals, oil, gas, and transport, in particular, airlines, are all bad.

Now, every dog has his day, right? There will be a year somewhere in the cycle where mining is good or airlines are okay. Of course there is. But good things don't become bad and bad things don't become good.

So that's the first point is, on the whole, we're not suddenly going to find all the good companies have become bad companies, all the bad companies have become… It persists. And the reason it persists is because of competitive advantages in those sectors. There are certain competitive advantages that those sectors and the leading companies within it enjoy. It's what Buffett calls the moat, the defensive mechanism. How do they keep those sharp elbows and keep you out? Because we can all look at Coca-Cola and see it's got good returns, but how are we going to get in there?

We've got to get past PepsiCo and Dr. Pepper first before we even get a crack at them. They've got this means of defending themselves. There's no doubt that we are in the era where there's been change. We can look around us and go, "Well, in the time that I've been in business, we've seen change in terms of computing and the internet and mobile telephony and social networks."

and maybe we're seeing something now in ai maybe maybe not i don't know and it is a period of change

and there's no doubt that you've got to be alive to it. I think we are alive to it. Not everything that we've got was founded in 1920. We've got Meta, and we've got Microsoft, and we've got some stuff that's more recent. But before we rely upon the idea that there's never been more change in this, bear in mind I did a history degree. You need to think back to earlier periods in history. You're sure that this is the most change we've ever seen because if you were involved in the communications business across the last two centuries, you

you would have started in the telegraph business where they put up wires typically alongside railway lines and you sent Morse code. That's how you communicated, right? Dot dash, dot dash. And then somebody came up with a means of having a microphone so you could have the voice. So we attached a microphone to the wires. Now we could talk to each other.

And then somebody invented radio. And after we'd had radio in place for a while, two things evolved from that. One was we could talk to each other without being connected by a wire. That's different, isn't it? So ships at sea and people who are traveling could communicate. And not only that, you could communicate to the many. You could broadcast. That's a bit different, isn't it? Then along came somebody who said, never mind that. I've got this thing. You can look at each other while you're communicating. You can have television.

You can have either video or you can have broadcast television. Then along came the internet. So if you're involved in this, it's been a hell of a lot of change already, hasn't it, along the way? So recency bias is something I think that a lot of people suffer from. It's tempting to think that we've got more change now than we've ever had before. I'm not utterly convinced.

There's so much to unpack here. And I wanted to highlight a few things for our listeners before we move on, right? So one thing that's very distinctive about what you do, which is very much in tune with Charlie Munger, right? I wrote a chapter in my book about Munger and just not being a fool, avoiding standard stupidities. A lot of what you do is just avoiding certain things, right? So certain sectors you're avoiding.

Right. Don't do stupid. Munger is great, I think, because he does have this idea that if you invest in good stuff, you'll be all right. Roughly speaking, you could take our entire investment philosophy and boil it down like that. If you've got good stuff, you'll be all right. That's it. That's it. You might not be the best fund or you might not help everybody in the world, but you'll be all right. Good stuff. Sorry, I interrupted you in the middle of talking about Munger here. No, it's such an important insight. I mean, and the ability to sort of

make it very simple, right? Just buy good stuff. I mean, I remember you saying at one point, you don't need to own the absolute best stocks. You need to own a lot of pretty good, you know, really good companies that are resilient and durable and then avoid the crap. And so tell us how you figure out what bad companies look like. Like when you're looking at the financial statements and you're looking for warning signs,

Because a lot of what you're doing is A, getting rid of lousy sectors and B, getting rid of lousy companies. I mean, an awful lot of it comes down to just knowing. It's like you, there aren't good airlines. I mean, people say, what about Ryanair? Every rule has an exception somewhere out there. But on the whole...

There aren't any. And if you look at the last 20 years of data, it's lost something like 5% versus its cost of capital on average every year. It's a machine for destroying value. That's just what the statistics tell you. So that's what analyzing the statements will tell you, either in aggregate or individually. Then you go, I wonder why they are a bad industry. So let's think for a moment. Every single major factor involved in those companies is outside their control. This is another thing to look for. You're looking for companies which have

have certain things they can control and work on the things they control. They don't worry about the things they can't control, they work on the things they can control. Airlines can't control the frequency with which you fly. Now, load factors vary, right? They can't control atmospheric conditions. Things happen to stop them flying from time to time, volcanic dust clouds and things like that. They can't control their main input costs, which are fuel.

double price, staff, largely unionized and so on, and the cost of airplanes. Basically, they are buying airplanes from two suppliers. And then you get onto this. Hopefully, this is a rhetorical question. Is an industry a good industry or a better industry if there are fewer, from an investment standpoint,

If there are few participants or many participants? Well, the answer surely is few participants, right? I mean, ideally, one would be great. But, you know, if we've got to have it, a duopoly is okay. You know, Visa and MasterCard, Coke and Pepsi and so on.

Last time I checked, and I'm sure I'm out of date before anybody sort of brings up or writes on your podcast, he's an idiot. But the last time I checked, and I haven't bothered checking for a long time, there were 3000 airlines in the world. Then bear in mind this, out of those 3000 airlines, quite a large number of the owners and operators aren't even trying to make money. They're national flag carriers. They're owned and operated by governments using your money.

They don't care. They really don't care. Or they're owned by entrepreneurs who really like their names on the side of planes. So when you look at sectors, you say, well, I've got the financial statistics and it's the opposite of what we do. Okay, so the statistics are good. How do they make that? How do they make that? They're really terrible. Why? Well, we can look at all the reasons why. We can look at those terrible sectors and look why. So if you look at

mining and minerals or oil and gas or transport including airlines and banking and investment banking and insurance and real estate it's dire they're just dire sectors you said you need to begin you almost need to begin this the discussion about the individual company that somebody's telling you about you almost need to begin to think about it don't think back to the stern business school and it's good versus the trickier is when you get into a sector which is commonly populated by quite good

quite good companies, but you get businesses in there which are not good. And that does happen sometimes. Just like you occasionally get sectors where they're bad sectors, but there's a good one. Let me give you a couple of examples out of there. If we looked at in consumer staples, just sector that is generally good, and we looked at Kimberly-Clark, the company that makes toilet tissue and kitchen towel and tissues and so on,

It's not a great business, I'm afraid. The business of making paper towels isn't something where there's a great deal of brand loyalty. I don't know how many people go down the supermarket and feel they've got to buy Scottex or they've got to buy Kleenex. They just want a paper towel. They're really not concerned about it as much as they would be if they put this into their body, if it were to have food and drink and medicine and so on. It's not got the same kind of price. And it's in the consumer safety set, but it's not great, is it?

And then you mustn't get hooked up on sector descriptions. Sometimes people will say, well, do you invest in chemical companies? No, terrible. But you owned a company called Sigma Altrich. It was taken over. We did own it. It wasn't really a chemical company. What it was was a

company. It literally made chemicals, but it made little pots of chemicals, which it supplied to biochemists doing experiments and tests. And so they were trained as biochemists to use its catalog, its online catalog. So when they got an experiment or test to do tomorrow or the day after, they go on the catalog and order their ingredients and the little pots turn up with all the stuff. That's what they supply. And what they're really in is in the fulfillment business.

They're supplying stuff to help you do it. They're supplying the stuff that will do it. You don't really work out what the bulk cost of the container of chemicals is. You just want to know that it's going to be there waiting in your laboratory in the morning when you come in. And then, of course, the final frontier is they have a certain amount they supply, which is corrosive or poisonous or radioactive. In other words, difficult.

And that gives them an edge as well in terms of the ability to safely supply ingredients like that. And so it literally had chemical on the tin, but it wasn't really. It was actually a company which had trained scientists to use its ingredients in experiments. And it's average.

supply. It's not like a bulk chemical company supplying thousands of tons of phosphate or something. Their average pot cost $400 last time I looked. So it says it's chemical, but it's not really. So you've got to be careful about those, the ones that cross over there, or in a sector that's good but are bad, or in a sector that's bad but is the odd good one. You have to be careful.

So when I look at your list of top 10 holdings in your flagship fund, and I see things like Meta and Microsoft and Nova Nordisk and Striker, which I think you've owned since the inception of the fund 14 years ago, or L'Oreal or Automatic Data Processing, Visa, Philip Morris Waters and Alphabet. Can you take a couple of those that kind of illustrate what you're looking for in a business that sort of embody what you love?

Yeah, yeah, I know. Let's take a couple of words. Microsoft, you know, it's the world's leading supplier of computer operating systems. Your computer probably works on it. My computer definitely works on it. The vast majority of business computing is done using its operating systems. If you go back to when we bought it, that was its leading business, Windows. And it had the servers and tools, professional business.

It had a change of management, which we were hoping for shortly after we bought it, and its new management took it into other things which were linked into it. So, it's now vies with Amazon Web Services to being one of the leader in the provision of cloud computing services. So, using distributed computing rather than having the computing sitting here on our desktop, using the cloud to back up our information and process it and do it on a common platform.

It's something which they've basically been one of the two leaders in since that thing. They're also leading in gaming. Although they screwed up the mobile telephony thing and handed that to Apple, basically. That was before we bought it. And they have actually made a comeback in business computing in terms of mobile devices with the Microsoft Surface and so on and so forth. And we'll see where they go in AI. But all of this is built into a company which has regularly produced

high growth in revenues and high returns on capital. I'll tell you what they are while we're talking. Give me a second. I'll just log on to my system. But also what's relevant, Terry, is you bought it during a period where it was out of favor. So, I mean, you often talk about this issue of valuation with quality companies. There's a very interesting thing, a chart that you have in the introduction to your book, Investing for Growth, where you talk about how you would actually have been justified paying a 281

PE for L'Oreal back in 1973, or 126 for Colgate, or 63 for Coca-Cola. So you're willing to pay a reasonably high price for high quality. But then there are things like Microsoft, where actually you bought it when it was really undervalued. Can you also talk about how you think about this issue of valuation when it comes to high quality growth companies? Because it's very

It's very thorny, particularly at the moment with a lot of the magnificent seven. Yeah. For a really good company, we are very bad. One of the things we're very bad at is

estimating the impact of compound returns as human beings. When you look at the difference between a 10% and 12% compound return, the difference over 20 or 30 years isn't 25%. People don't realize that actually it quadruples the capital value in that differential. Wow. And

And we're very bad at that, you know, unless you sit down and compute it yourself. And so people don't figure that out, I think, very well, which means that commonly things which are able to make persistent high returns and growth do not get full valuation. L'Oreal is a great placing point with that particular calculation. It's astonishing.

But if you look at that table, you could have paid 100 for Pepsi, 100 times P for Pepsi in that. But look, as much as we acknowledge that and we do acknowledge that markets, whilst they're not completely perfect, aren't completely imperfect either. On average, they price good companies better than bad companies. So we're going to have to pay a higher price for our good companies than the average. People keep coming up, oh, it's fixed. But yeah, well, it's going to be because it's a better company.

But once in a while, some form of madness overtakes them and they offer you something which they really shouldn't. It's kind of like, how does it happen? So we started buying at Microsoft when it was 25 bucks a share. It's 420 something today, right? And it's been in our top performance eight years running. This shouldn't happen with a company this size. It was trading on a P of about eight when we bought it because

Because Steve Ballmer, I don't know Mr. Ballmer, I don't really want to be critical of him, but he had been a happy period when he was there. And they'd missed out on the whole mobile telephony thing. Then they bought Nokia, and that had been pretty disastrous. And they bought Skype, which had been pretty disastrous too, which is ironic given that Teams is now such a success.

And so there we were. And when we're looking at things like this, so we look at something like this, it's a company with returns on capital around 30%, right? And revenue growth now has been coasting about 20% for a long period of time. This shouldn't happen. We think we've found one of these, and we have found them. We've found it in IDEX, Infection Equipment. We've found it in Microsoft. We've found it in Domino's Pizza back in the day.

We sit down and think, are we missing something here? And what we tend to do as a sort of check on sanity as much as anything else is go and look at what the detractors are saying. What are the detractors saying? What are they saying is the reason. I remember an awful lot of the Microsoft stuff, roughly speaking, just said, well, it's not Apple, is it? Well, no, it's not, is it? We figured that out all on our own. Very famously, the

In my view, the Financial Times Lex column, and I do know which journalist wrote it at the time, but obviously they haven't got a byline on it, unfortunately, said when it was $26 a share, nobody should own it at this price. And they were right, but not in the way that they meant it. And it's like sometimes when people are just absolutely mad about things, about you shouldn't own this.

You do get this opportunity where a large, very good business gets offered to you at a price where you just shouldn't get. Meta was another one after the Cambridge Analytica thing. You know, Meta really was a gimme in terms of, I mean, it's gone up 500% or something like that since that point where we owned it. And we received a cacophony.

of invective from people about how we shouldn't own it. I mean, I mentioned in the, I quote my previous annual letter and this year's annual letter saying, I'm always thinking of having a fund that just buys the one share everybody tells me not to own.

Because they're working off emotion and anecdote, right? You know, people were saying, nobody's using Facebook anymore. I mean, I remember saying, nobody's using Facebook anymore. I said, oh, right, okay. Where do you live? Well, Tunbridge Wells. I said, oh, how about in Jakarta? Are kids using it in Jakarta at all? Well, how would I know? I said, well, I think that's kind of more important, don't you, than Tunbridge Wells? So your kids are not using it anymore. What are they using? Instagram. I said, you do know they own that too. Ha!

The plural of anecdote isn't data. Just deal with the facts. There's an old TV series from the '50s called Dragnet, and the detective, whose name I can't remember, would always be interviewing a suspect, a witness to something that had just occurred, a murder or a robbery or something like that. And they'd be gabbling and they'd say, "The facts, ma'am, just the facts."

It was a very nice thing. And I think it was in Investing for Growth, your book, which collected your letters from the first 10 years of the fund, where you quoted the Simon and Garfunkel song, The Boxer, where you said a man... The Boxer, when he wants to, he disregards the rest. Yeah. I mean, look, you can get an awful... I'm quite serious now. You can get an awful lot of stuff from

from the movies and from song lyrics because people spend quite a lot of time sometimes on movies and on film lyrics. Yeah. And on song lyrics. And so sometimes they've got a bit more meaning than just somebody, Simon and Garfunkel, playing a nice tune. I mean, one that we quote all the time is,

is the movie All the President's Men about the Watergate affair, which has got so many quotes out of it. And, you know, the bit where Deep Throat, who's the FBI deputy director, I don't know who he is, but he's giving information to Woodward paid by

paid by Robert Redford, and he meets him in the car park. And one of his critical pieces of advice is, follow the money. Yeah. The money. If you want to know what's going on, just follow the money, right? And there's lots of examples of things like that. You know, we play to ourselves clips when we're explaining things day in, day out. There's the bit in Casablanca where the gendarme goes to close down Rick's Cafe. He blows his whistle and he says, this place is closed down. I'm shocked, shocked.

shocked to hear there's been gambling here. One of the waiting staff comes by and goes, "You're winning, sir." Whenever we read one of these things out, yes, apparently somebody has been bribing people to do business in Nigeria. We always play the Casablanca game, right? I remember Howard Marks quoting to me Clint Eastwood in Magnum Force saying, "A man's got to know his limitations."

I quote that one too all the time. A good man knows his limitations. He's told by the chief of police, he's being asked to deliver the ransom to the bad guy. And he says, we don't want any gunplay from you, can I? And he said, I was a cop for 20 years and I never ran off with my weapon. He says, that's good. A wise man knows his limitations. It's a great quote.

The movie is littered with great quotes that you can learn something from, in my view. So this idea of how people hear what they want and disregard the rest is really important. And you've operated in a team for a long time, right? You've had Julian Robbins, I think you've worked with for 38 years, and he's your head of research, and he helped you co-found the firm. And

You sometimes talk to him as your designated successor if you retire at the age of 145. Yeah, Mr. Robbins, as he would know him then. Yeah. Tell me how it helps to have a partner like that. Because I see this a lot with, I mean, look, Howard Marks talked to me about Bruce Karsh. Joel Greenblatt talked to me about Rob Goldstein. I've interviewed Charlie a lot, who obviously was the abominable no-man for Warren.

Talk about how it helps in terms of just dealing with your own blind spots and potential biases and the like to have partners. Yeah. I think that Julian is very intelligent. He's also got a first in history, by the way, and very honest. And he's different to me. And amongst the differences are that he sometimes sees things in terms of the subtleties of what's going on that I miss.

And he's got a very, very good way of pointing them out to me without pissing me off. Basically, he can get me to understand something without getting into a fight over it. And that's quite important that he says, no, I wouldn't buy that because of this. And have you thought about this in terms of, and he's almost got a way of saying, like buying L'Oreal, he'll go, well, you know, I think if you take the P ratio, roughly look at it in a mirror and edge your car license plate, it's okay.

and really he's just duping me right i mean and and somehow he manages to get my like he might have a point about looking at it that way you know and i'll go and buy it and really no he just talked me into that didn't he he realized that i if i hadn't been talked into it i would always have been sitting there going no it's a bit too expensive and then we never wrote so he just found a clever way of bloody spoofing me into it didn't he you know and he did and he's got a great

inquiring mind. He actually really likes the stock market and he likes, he's lived in America for, I don't know, 30 years now and he's got a wealth of knowledge about America and the stock market that he brings to bear in a way that I simply can't. As much as I deal with Wall Street and worked on Wall Street, I'll never have that length and depth of knowledge that he's got, you know? You have a very interesting

sort of emphasis on the US in what purports to be a global fund, right? I mean, when I checked the other day, I think it was 74% in the US. And obviously, there are these issues over where a company is domiciled and all the like. France is about 9%. That's not real sales in the US. We had a company that was US, and in that number, they had zero in sales in the US.

But it's clear that the US is a massive hunting ground for you. I mean, with all these companies like Microsoft and Meta. When you think about this issue of what makes the US special and whether this is just a sort of a permanent, if anything, is permanent advantage or whether it's just another kind of pendulum swing. And sooner or later, you know, the pendulum will swing back to emerging markets or whatever else.

What do you think? I mean, you used to have an emerging markets fund and then you closed it at a certain point. Is the US just a persistent winner? David Morgan : We're right, by the way. We've continued to . We're right. Look, the US is the biggest economy in the world. Let's just start with that, shall we? Secondly, it has the most active capital market in the world. So when we're talking about where companies are listed,

Increasingly, as you'll see much of the chagrin of people in London, companies are listing in America, which are not in America. So I mean, given that it's the biggest economy and given that it's got the most active capital market, I'd almost say if you're doing what we're doing, why haven't you got more companies in America than it was? How does this work then?

because if you are a company thinking of listing, if I were thinking of listing, why would I think about doing it in London? The greatest debt of market, the biggest liquidity, the most investor attraction is in New York, isn't it?

And then you think about how companies become big and very profitable companies. One of the things that helps American companies is that they get the opportunity to build their strength in the biggest market in the world before they move out and take on the world. So, you know, whether it's in technology or healthcare or consumer and so on, they sit there and they become the dominant player then. Then when they reach out into the wider world, it's very difficult for people to compete with them. You know,

When Coca-Cola and PepsiCo arrive in the UK, do you really think that Britfic are going to give them a run for their money? So that's in their own market. How about once we get to an adjacent market? So in Europe, how's Britfic going to do there against Coca-Cola? They're like a boxer who's pumped up in the gym.

who's been fighting, he's been in the cronk gym in Chicago, fighting the best heavyweights in the world in sparring. And then he turns out and he's finding a hometown fighter somewhere in another country. Like, I wonder how this is going to go. So you just got to bear in mind, it's the biggest economy with the biggest capital market. And the companies, the Coca-Cola's and the Microsoft's and the Stryker's and so on, have had the ability to build a fantastic base there before they move out into the wider world and take on the local competition.

Then you get onto other factors as well when you look at the world at large. Europe, the great saying is America innovates, China replicates, China or Japan replicate, and Europe regulates. I mean, some of the stuff that's going on in Europe, like the Digital Markets Act, they may as well put up a sign here saying, "High-tech not welcome," I would say.

And it's kind of sad if you see what's driven the market in recent times, because look at the heights of technology in terms of the companies. And I know I am a billion other people going, well, that's a bit worrying in terms of the size of their domination of returns. But what's the biggest UK technology company?

God knows. There's nothing really famous, is there? Well, I'm talking about listed in the UK, Sage, which, by the way, is a good business. I've got nothing against Sage. Please don't take it as that. It's a very good business. But that's it. An accounting software company based in Newcastle is the UK's biggest indigenous technology company.

and I'm embarrassed to say I've never even heard of it. So that's, I mean, I'm based in New York and I've never heard of it. It's funny you should say that. We happen to know that when they were looking for a chief executive, and by the way, this is not meant to be in any way a criticism of the currency, but I think he's a good guy. But he's an internal appointment. The reason he's an internal appointment, much as anything else, is they went out to headhunters to try and get a

a CEO. And when you start, if you're looking for a headhunter for a software firm, you'd start in Silicon Valley pretty much, wouldn't you? So they got a headhunter there and said, go around, see if you can find any COOs or number twos or whatever would like to step up. And the response you just had is the response they got from everybody. Never heard of it.

I don't think that Europe is about to overtake the United States in any of the areas that we've identified as being good businesses. I can't see any. I can't say China is difficult because you don't truly own the business. I mean, you are actually in partnership with the Chinese government for good or real, particularly in the high-tech businesses.

And Japan, at least until very recently, businesses weren't run for the benefit of shareholders. They were run for the benefit of the employees and the wider Japan, as it were. Returns on capital and things like we're discussing, we're like, hmm, okay. So that's why we haven't got very much. It's not that we don't like them. We actually have a bit of a soft spot for European companies in the industries that we like, which are run by families and

and have a very long-term perspective. So if you ever look in Apple's portfolio, things like L'Oreal, LVMH, Atlas Copco, you know, we do like them. But they're rarities. Sorry, I interrupted you there. Go ahead. No, I was just wondering because I, I mean, it's interesting that there's a discussion between two Englishmen who are not living in England. So that tells us something about... We're not a coincidence, that, is it? Right. I mean, and both of us, I think, love England and love being there. But there is a dynamism when you move...

out, certainly when you moved to New York. But when you think about the future of the British economy, when I go back, I sometimes feel like, I mean, I only really go to London, and I'm no doubt going to annoy lots of people here, but I feel like it's almost become a kind of playground, at least in the areas I go to, which are not that representative, it's become a playground for the foreign rich, right? It's not

It's not really dynamic as an economy. It's more a really wonderful place for other people to come and spend. It's true of London, I think, and I'm a Londoner, so I feel strongly about London. I think it's the greatest city in the world, probably, but I'm obviously not exactly objective in that opinion.

And it's sad, I think, that what you describe is at least partly true. But that really explains the British economy and where it stands. I think also what the British economy has been good at in terms of innovation, and it's got a great record of innovation in health care. It's got great drugs and other areas.

It's got it in technology in a number of regards, ARM in terms of low-power chips for mobile telephony. They've dominated that over time. It's got it in a number of brands as well. Over time, it's developed, which has been very good. But I think that the problems that it exhibits are insurmountable.

In the end, I think there is, in my view, an anti-entrepreneurial, anti-capitalist, whatever you want to call it, spirit abroad in the UK. And it's been problematic, I think, for a very long time. I think one of the biggest differences with America, and like you, I love New York. I had an apartment in New York for some time and spent a lot of time there, is I think on the whole, and I realize this is a generalization, Americans wish to emulate success. Britons wish to destroy or criticize it.

And that's my take on it. And I'm afraid, I don't think that's helpful, really. We've got to learn to appreciate people who are successful and applaud it and wish to emulate them and multiply it, not bring them down in some way. So the other thing about the UK is I think you're probably right about London, but once you go outside London, the thing that becomes evident to me is a number of things. One of them is it's been somewhat hollowed out. I mean,

The industries which we used to rely on for manufacturing have by and large gone. But going back to what I was saying earlier about progress, that's not new. If you take the textile industry, it originated in the north of England in the Industrial Revolution. Then it migrated to America in the northeast after the Civil War. And then it migrated to places like Hong Kong. And then it's migrated from places like Hong Kong to places like Mauritius. And then it's gone from places, it's become a middle-income country, it's gone to places like Ethiopia and Cambodia and Madagascar.

and it keeps moving. And you have to move on yourself. It's no good saying, "Well, I think we'll start." I'm not lamenting the absence of the textile industry from the dark satanic mills in Northern England. You have to move to new industries. But you do need to move to new industries. You don't need to have half the population employed by the public sector, which it is. That's not going to be helpful because they aren't actually going to create anything whatsoever. Here's a statistic for you.

The poorest state in America is Mississippi. And the median income in Mississippi, and I'll give you an exact figure, but not on this call, but is about 44,000 US dollars. Now, that's the same as the median income of the UK. What went wrong?

Because something's definitely gone wrong. I mean, think about... Because I think one of the things that strikes a lot of people when they travel around America outside of the main conurbations is how poor America is once you get out into the... Out on the boonies. Well, yeah, but the UK is pretty poor all over. You know? Outside of those enclaves of London and a few other major cities, the UK is as bad as not just America, but the poorest state in America. I'm not...

I'm not being party political in terms of my views on this. My view is if they – I don't vote in elections in the UK. I'm not on the electoral register. But if they had an election, they had a draw, they could bring me and I'd let them know which way I would have voted because that's my view on them essentially. But both sides of the divide in the UK seem to me to have a rather large responsibility for this lamentable state of affairs. Let's take a quick break and hear from today's sponsors.

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All right, back to the show. There's certainly a tremendous dynamism in the US that I think I definitely remember when during the financial crisis, when, you know, obviously the US kind of triggered a lot of the world's problems and everyone was sort of gleefully saying, you know, well, the US is finished and, you know, now things. And if you lived here, you just had this sense. It's so dynamic and the flow of capital to good ideas is so quick.

Speaking of which…

People are all terrible. I don't think it is terrible. One of my mantras about running a business is, I don't think you should ever be allowed to fire people unless you've been fired yourself, right? Because you need to know what this feels like. And if you're going to sit in a room and you're going to actually fire people, you need to be able to talk to them from a position of empathy, I think, in my view. So I'm not in favor of just going like a chainsaw at people.

But I am in favor of dynamism and dynamism only comes that you're describing in part from grasping not just money going for new ideas, but also how to deal with problems. The dynamism of changing where people are living, what jobs they're doing, who they work for is, you know, the U.S. is in another league, I think.

I think you're unusual also in that you've not only been a very successful stock picker, but you were actually a very successful CEO. I mean, you've been a CEO of two public brokerage companies, one of which I think you built into having about 3,000 employees and the other you floated and there were lots of mergers and demergers and the like.

And this is back in the 1990s and 2000s. And it reminded me when I was reading about your past as a CEO of the quote from Buffett, where he famously said, "I'm a better investor because I'm a businessman and a better businessman because I'm an investor." And so I was wondering if you could talk a little bit about what you learned as a CEO that's helped you as an investor.

Yeah, I mean, look, one of them is that change requires time quite often, notwithstanding me saying, you know, acting quickly is good because even if you act quickly, you've still got change to implement. You might change the person, you've got change, and quite often money and effort and lots of other things. I've got a very good friend of mine who's got a steel business in the UK, and he said when he was a quoted company, which he's not anymore, he went private, and that was it, he said the analysts ringing up, asking him about how to change things, reminded him of the following. He's got this funny one, but he says...

They think that I've got these two buttons on my office wall, a red one and a green one. When I come in the morning, I press the green one, which is labeled make money. And then when I put my coat on to go home at night, I think, oh, I must remember to press the old red button. He said, it's a bit more complex. We've got to design products. We've got to get orders. We've got to build molds.

And I think unless you've actually done that, it's difficult to understand. I mean, it's like people who sometimes come out of running a fund and then try and build a fund management business. And I said, well, it's like when I was head of research at UBS. People used to come to me because one of our analysts was a very heavy guy, been a hammer thrower at college and put on a lot of weight.

And when he sat on the toilet seats, he used to break them because you know they stand on these little blocks. They're up there. This guy, if he wasn't careful, and people would go and say, I just cut my ass on the toilet. And I'd have to say, Lachis, could you just sit down a little bit more carefully because I've got people keep coming in. It's like, you know, the way I would put it is the day job isn't glamorous.

when it comes to managing businesses. Quite a lot of the day job isn't sort of striking a pose like Rodin's The Thinker and having great strategic thoughts, right? It's actually about execution implementation. And a lot of execution implementation does involve dealing with toilet seats and the like. It just does.

And it's not that different with your investing, right? With your investing, you've talked about how so much of it, yeah, you have these grand theories and principles and stuff that are kind of timeless. But then there's the blocking and tackling day to day where you're listening to conference calls and you're doing modeling of free cash flow.

I say to every new recruit that we've had, with some success but not universal, I say before they begin, I say, I use the exact phrase, the day job is not glamorous. What we do is not sitting here having great thoughts on investment. I said, we don't sometimes have one for a couple of years or more at a time. The number of Microsofts and IDEXs and things that we pull out of that is relatively rare.

And if you've got one, we'd love to hear about it. But when you've got three in the first week, we're going to get a bit suspicious. The reality is it's about modeling and collecting data and listening to calls and writing up notes, looking so that we've got a record that we can read back through and read what's gone on historically. And that's really the vast majority of what we do. And you told me right before we started recording about a sign that you had in the office. Can you tell us about that? Because in

In a way, it embodies this mindset of kind of dogged incremental progress and not screwing up. I put up the five P's, so five uppercase P's in a frame. And the five P's stands for preparation prevents piss-poor performance. Don't turn up for something without having prepared. Don't go to a company meeting and you haven't read the last results and the note that you wrote before, you know?

And it originated from a time when I was in Broking and I went on a trip to Scotland when I was at UBS as head of research with the CEO and a salesman. The salesman, I'd come from another Broking firm and I'd looked at our Scottish bioptics and they were terrible. And the salesman said we were number one or top three or something in Scotland. We clearly weren't. And so we decided we'd resolve this by going to Scotland. Why not? And we were there having a meeting with the general accident as it was in Perth. They were lovely guys. I knew them there.

But they were lovely guys, but with that nice steely sort of bit in the middle that you get with the Scots, which is good. And we were having a conversation about what they thought about the service. And they said, well, what do we think about the service? How much did we pay you last year in commission as a broker? I kind of looked at the salesman and he said, I don't know. I said, you don't know? They said, well, we paid you 4 million pounds or something like that. I said, how much did we pay you the year before? 5 million. So they said, what they were telling us was,

They were giving us, never mind sitting in meetings like this or filling in surveys, they were voting with their wallet. Anyway, I came out of the meeting and I said to the CEO, "I would fire that guy." I said, "Go into a meeting with you in the room, never mind me in the room, and you don't have the basic information on the client to hand is just a no-no." That tells you right off the bat what we're dealing with here. There is no excuse for that. There's no excuse for

turning up to interview a company, be interviewed by an investor. If I'm being interviewed by an investor, if you were coming on and say, "Terry, I want to interview you about my holding in Fusmit," and you go, "Do you know how much I've got invested in Fusmit?" "No, I haven't actually got a clue, William. How much have you got?" It would be a bad start, wouldn't it? When did I invest? I don't know, actually.

I've got data on this, but if I hadn't taken the trouble, have you made money or have you lost money with me? How much money have you made? Have you been putting money in or taking money out? And the idea of turning up without doing all this work is just preposterous in my view.

I sort of wonder if when I look back at your youth, right, where you came from this poor background and then you're like this working class kid going to university college in Cardiff and then you get your MBA, but it's not from Harvard or Wharton, right? It's from Henley School of Management. And I'm wondering if there's something about having been an outsider and having to fight for everything that you've done that's been really key to your success.

I wonder if there's something very central to your success that you've had to kind of scrap and be tenacious and work harder. And you were always sort of this super competitive outsider. Does that resonate with you?

Yeah, I think that's pretty accurate, actually. I think that's a large part of this. I've never been part of whatever the establishment is. I mean, I suspect we've got a new establishment now that's replaced some of the old establishment in time. I've never been part of that. I've never wanted to be part of it either, actually. It's never struck me that I particularly wanted to join any club or anything like that, literal or metaphorical in that regard. And

Yeah, I have always felt that, that I was a bit of an outsider and I had to work for things. And I think it's probably a good thing on the whole to be in that situation. I had a conversation with somebody who were having a dinner and at the dinner was someone's son who was at Eton. And when the pair of us were leaving and he said to me, I've got five sons, I'd send him to Eton. I said, would you? I wouldn't. He said, why? He said, it's where everybody runs the world goes. I said, no.

I just don't see this as a great positive. I think I would rather that he went to a very ordinary school and found out how the world really works. My friend, the steel man who I'm telling you about, it's a family business. He's a son of a family that's owned it for several generations. And he refused to go to public school and put himself into grammar school.

And I think it's to his credit, but also to his benefit, because I think, you know, when you're walking through a foundry and talking to people, you might be able to understand a little more what their issues are and what they're doing if you actually have been alongside them from time to time, you know?

It's such an interesting issue. You know, I went to Eaton and I went to Oxford, but I'm a Jewish kid with, you know, from a family that fled from Russia and Ukraine and Poland. And so I remember going to a friend's house. For an outsider, Eaton? Yeah, exactly. I mean, Bruce Greenwald once said to me, oh yeah, the Jew from Eaton. I mean, there were 10 of us. Yeah, I was surprised there were that many. Yeah.

I think there were a few who were pretending not to be. I mean, I think there were some who concealed that they were Jews. And so I think being an outsider, I mean, for me, being an outsider and an insider, somewhere between the two. So I'm comfortable interviewing anyone or talking to anyone because I was at school with people like Boris Johnson and David Cameron. So I know they were nothing really that special, right? You're not that intimidated.

Because you- Use my Casablanca, I'm shocked to hear that. I mean, they were very, I mean, Boris, I remember when I was a little boy, I mean, I was 13 and he was the head boy and he was clearly incredibly charismatic and a big personality. But the idea that these sort of entitled, very bright Etonians who knew how to write Greek verse

should be making big impactful decisions about the future of the company of the country just because they've gone to eat in an oxford i mean it was kind of laughable if you knew them because i knew what a fool i was and i you know i mean i came top in english in my class i mean i was i was as smart i was as smart as a lot of those kids and i know that i'm a moron but the i think the ideal place if you can get to it and i don't think many do is to be able to

get along with and communicate people with people, whatever, pretty much whatever their background. And if you're going to do that, I think then you've got to about the right place. If you can be at Buckingham Palace with Boris sitting alongside you having lunch, and I have been at Buckingham Palace with Boris sitting over there having lunch, and at the same time you can go to the boxing gym with the young black kids,

then I think you've reached a good place is my view. And I feel sometimes I'm fortunate in that regard that I can do both those things and not feel particularly out of place in either one, you know?

It's interesting to me that one of your clients early on was Sir John Templeton, and you've talked in the past about going off to the Bahamas, to Leifert Key to see him and Mark Koleska, his chief investment officer. And I write in my book about Sir John because I went off and interviewed him in the Bahamas and spent a day with him 25, 26 years ago. And in some ways, you seem to have kind of recreated

his life where you've gone off to Mauritius and you're sort of away from the Madding crowd thinking for yourself. Can you talk about in some way whether I'm right in thinking that Templeton somehow influenced you maybe in the same way that that movie early on influenced you and you thought oh there's another way to do this.

And also how it's kind of been an advantage to you to set yourself up in this very independent, non-tribal way, far away from Wall Street and the City of London. I actually emulate Tim Wooden in more ways than you might think. Because he, as you probably know, used to walk in the sea every day. Yeah.

I go for a swim out to the reef and back whenever I can, which is two or three times a week at least. And my colleagues say, oh, that's interesting. And I do, weirdly, if there's nothing else going on when I'm doing it, I do think about it. It's strange, isn't it? Just doing an activity similar to what he did in the Bahamas. But yeah, it definitely did influence me to see

somebody like that at work. And I always remember very early on when he talked about how to react or not to events, he said, you know, I mean, obviously between way pre-internet, he said, you know, the papers arrive a day later, I get the Wall Street Journal the day after it's published. So by the time there's a problem, it's too late to panic.

And he was making an important point in a trivial way about that. The events, we often write up in our daily news write-ups, we write to each other and we look back over periods of time, sometimes only a few weeks, sometimes a few months and so on and say, if somebody had gone to sleep on that day and woken up on today and we've had all these events in the middle that happened where terrible, great things have happened in terms of elections or wars or pandemics and so on,

Since the market is at the same level, if they didn't look at any of the intervening events, I wonder what they would conclude. Nothing's happened. So was anything that happened terribly important then? Because mostly the answer is no.

No, it's not. And I think he and Buffett, although I've never met Buffett and so on, from the way that he's explained it, it is valuable. And there have been other people, I think. They're not the only people who've done the, you know, I don't want to be in the swim. I talk to people who I know in the industry who operate from London or New York. I mean, I always say a lot of these guys need GPS to get outside at West One or SW1. I mean,

They don't know how you do it, right? And I say to them, why are you there? And they go, well, I like to stay in touch with the companies. I say, you're an investor in Procter & Gamble, right? I said, yes. So I say, they're in Cincinnati, right? And I'm West Wales. And the reality is,

scratch and they like to be able to go and talk to other people doing what they're doing whether they're brokers or other managers and they like to be able to beat them for lunch and beat them for drinks and pick up and they like to compare notes on what they're all doing and the reality is they don't really want to stand out from the pack too much which is fine i mean that's there's the old john maynard canes quote there the worst thing you can have from your career is to is to differ from the norm even if you're successful it's still it's still an asthma to people and that they

And they mainly don't want to get that far out from the norm. And if you're trying to invest for the real long term, being in that is unhelpful, really unhelpful.

How do you actually structure your lifestyle and your ecosystem there so that you're able to operate in this very long-term, patient, independent, spirited way and sort of resist even the pressure to think about short-term results and stuff in an increasingly short-term world? We don't speak to any brokers, not one.

We don't take any research from brokers. We don't speak to them. We do it ourselves. So we've got... Why? Well, you know...

Boxers are paid to fight, so they like to have fights. Lawyers are paid to have disputes, so they like to have disputes and put on them. Brokers are paid on transactions. Guess what they like to do? We were brokers. I was a broker, right? True. Julian was a broker. We've done this job. We know what's involved, right? We don't speak to any of them. We don't take any research from them. I get a small tsunami of stuff that comes through asking whether people can give me a service. The answer is no, no, no, no, no, no, no. So we don't take any of that. We're completely cut off from that.

The fact that I'm in a different time zone helps as well. I mean, for the first four hours of the day, I don't have anyone outside Mauritius, my car, I've got a dozen colleagues here who are awake. So I've got quite a large part of the day where I can mull over what I've read and what I've taken in the previous day and think if there's anything that I need to do about it or say about it or ask about it.

without any incoming whatsoever from people. And so that really does sort of… And also with regard to Wall Street, I'm going to switch off looking at things after I've been speaking to you. I'll go on and have a look at it. But I'll switch off unless there's something really, really big, something Microsoft goes bust, give me a call. But outside of that, don't bother. And so the remoteness does help. The other thing about Mauritius in particular is I think people talk about the world

And living in another part of it can be quite important, I think. You know, I'm living in an island that's about 800 kilometers off the coast of Africa, which has got a majority Indian population. And you can tell almost everything you need to know about Mauritius from the national holiday system. There are two days a year for Christians, two days a year for Hindus, two days a year for Urghurs, two days a year for Tamils, two days a year for Muslims, two days a year for the Chinese, plus National Day and the abolition of slavery.

In other words, people talk about diverse societies. It's a diverse society. People in the street, if they don't know who you are, will speak to you in French, first of all, if you're white, and if you're black, in Creole. Those are the commoner languages here. There are pretty good connecting flights into China and India. We're in the same time zone as Dubai.

Gradually, by various means, a different perspective on the world begins to enter your consciousness, I think, if you live somewhere else.

So you've set yourself up in a very free and independent way. I mean, it's been a long journey from, I mean, literally a long journey, right? 10,000 kilometers away from London. But I mean, in a way, the fact that you weren't part of the in crowd, that you weren't sort of growing up, going to par schools and then going to work in Mayfair at a hedge fund and stuff has enabled you to kind of chart your own course in a very unusual way.

Yeah, I think it has. You're absolutely right. And look, let's not rule out other things, luck as well. You need luck. But yeah, I also had some mentors along the way. I've mentioned a couple of them and probably two or three, four mentors along the way. When people ask me about careers and what to do, and they want to set up the latest fintech, I always say, get a job with an organization that will provide you with training.

Take everything that they offer. And if you can, find a mentor, somebody who will teach you how this works. And in doing so, give you experience that you otherwise won't get. And sometimes it's quite painful. I mean, being mentored is not always a positive experience. You have difficult ones as well. I always remember when I was working in branch banking, and we used to have to balance the accounts. The branch itself has a balance sheet for its operations, in terms of loans and deposits and everything like that.

and capital that we're operating on that's supplied. You used to have to balance those and all the individual accounts, the ledgers that went into it. I remember not being able to balance one of the ledgers when I was in graduate training. The manager's assistant took it off me and said, "Yeah, okay." Went into his office and came back an hour later and went, "I've balanced it and I didn't go to university." You do need people from time to time to tell you, you should be doing better than this.

It's not all people think, you know, the whole world of positive reinforcement. Once in a while, somebody needs to tell you you got it wrong. Yeah. It's an interesting balance, right? Because in some ways, when I look at your life, I think, you know, yeah, you're this tough sort of indomitable guy. And in some ways there is a, you know, I mean, you're obviously a very likable and charming guy and gregarious. And you've had people who've worked for you or with you for a very long time, for decades. But at the same time, you're clearly an intense and tough and slightly complicated

combative, scrappy guy. And I'm wondering how that works in the rest of life out of business and investing, because I look at so many of the great investors. I mean, this is one of the things I often quote on this show. Charlie Munger said to me that what struck him when he read my book was just how many of them ended up divorced or separated. And I wonder when you look back on your life, and obviously you got divorced, you've had contentious relationships in the life,

in your life. How do you turn off the intensity that makes you very successful in work so that then you can come back into dealing with a wife or a girlfriend or kids or whatever and actually not have that same mentality kind of overrun everything?

I don't think, if I've got a problem in that regard, I don't think my problem is approaching the remainder of my life with the same approach that I approach business. I think I am able to see the two things quite separately and approach them differently. I think what is difficult, however, is when you get into situations which are very intense, no matter how much you think, well, no, this is home life and I'm going to cook dinner or bath the baby or whatever you're going to do, you may not understand

still be able to get that out of your head. So, whether or not you can engage properly, sleep properly,

is not something that you can just do by thinking about it. It does stay with you sometimes. And I think that can be problematic. It's not whether you're treating everybody like they're in work and you want to see their numbers and you want to get them to engage in PP, PP, PP. That's not it. It's just as simple as if you've had an intense time, it can be difficult to switch it off.

in you. And therefore, whatever it is you're doing, you may not perform very well in relation to it. To the simplest level of sleeping, for example, or something like that, you've got something running through your mind. It may keep running through your mind and you may not be very comfortable to be with at that time. And that's probably... The other thing is, I think, if you do do things like running your own business and you do run businesses, including your own business, and you do it

and successfully and all that kind of thing. One of the things that people who are with you have to buy into or not is you will do whatever it takes. And some people can't buy that. They want to be the center of your world. And you say, well, you can't always be that. I've got this thing over here that I do. And maybe you've got things that you do. Maybe you haven't. I don't know. But there are times where I go, no, I'm going to go and do that now. And they go, well, that's not very good because I'd really like to go and do this. You go and do it.

I'll pay, you've got to do it. But I'm going over here to do this right now. I've just, you know, I feel I've got to do it because it's required. And some people find that quite difficult to accept, you know? Where do you think that...

ferocity and intensity of drive and focus comes from for you? Is it just competitive? Is it kind of a bit like being a being a fighter, being a boxer? Where does it come from for you? I think it comes from a balance of things. I mean, one is growing up in very bad circumstances. You know, I think, well, you could say, well, there's lots of people who grew up in very bad circumstances. Yeah, but how many of them escape, as it were?

And I think it mainly comes from that. If you're in very poor circumstances, in bad weather conditions and living in a terrible place and it's quite violent, one thing or another, it probably does breathe within you a determination that's otherwise difficult to encapsulate with people, very difficult to encapsulate with people. And I think that's it. When I went to see the kids in Mauritius who we set up the boxing gym for and

And it was, you know, the girl that they got me involved in, people know I'm a bit of a sucker for these things. She won some fights and got a few trophies and so on. But her mother was a prostitute, right? I mean, she was living in a shack and so on. And they know that I'm like that.

But anyway, I went to see her and I went to see the club and I saw the circumstances and they said, oh, it's terrible, isn't it? I said, yeah, I'm going to help. I said, let me tell you something. I said, if you're looking for world champions, they come out of gyms like that. They don't come out of air-conditioned gyms, right, with drinking fountains, right? They come out of gyms where basically there's buckets that people spit into and that's where they come from, right? Yeah.

Right? Real, real grit down there. That forms some kind of iron in the cellar, I think. And it does.

Yeah. How do you think about this whole issue of giving back and sharing and lifting up other people? Because I was talking to my mother yesterday and I said to her, she's in London, I said to her, I'm going to interview this guy and I told her about you. And she said, I disapprove of him. And I said, why? And she said, you know, he makes too much money, doesn't pay enough tax, owns too many flashy cars, a couple of hundred cars. And she's like, why isn't he doing more to solve society's problems?

And I said to her, I'll ask him, like, how do you think about that? First of all, I'd like to say that your mother, obviously, criticizing a man's mother is dangerous torture. She doesn't know how much tax I pay with the greatest of respect. No, I'll introduce you to my mother. You'll find she's about as formidable as you are.

Great. Uh, yeah, I, I, we recruited somebody a while back who told me a story about his mother and I said, I want to hire your mother. Yeah. Yeah. I think she sounds like a perfect employee for us. Let's get it. And, uh, and so, um,

It's funny you should ask that because it will at least maybe in part answer your mother's question, which is to say that I believe that philanthropy or giving back or whatever you do, there are a number of things I'm very strongly guided on by. It should be private and it should be with your own money.

an ante to the point of disparagement with the people who go in for glitzy events, you know, absolute return for kids kind of thing. And we'll have a big event and we'll invite the prime minister and we'll all bid, you know, a million pounds for a pair of socks or whatever the hell it is. And we'll give all the money to get...

No, the reality of that is first of all, you're doing it because it makes you look good and you feel good doing it. And the second thing about it is you're quite often in those circles. A number of people are going to go, well, I've got this charity and I want this and you could take part and do that for me. So what's going to happen here is I'm going to give you the money and then you're going to go up front it up and do all this. There's a certain degree to which I have to have people like that because I'm not going to run any things because I'd be extremely bad at it. But it's kind of like, guys, what you're really saying is can I pay for you to go and get credit?

That's what in some cases, a lot of people who raise money for charity, I think, first of all, they don't keep to my private rule. And secondly, they don't keep to the it should be your own money rule. I try by and large to keep to both rules. And so, again, going back to your mother, she doesn't know what tax I pay and she doesn't know what I do with my money. But I do give what I would personally regard as very significant sums of money to a private

wide range of things, not just boxing gyms for kids, but a lot of other things as well. How do you think of the parameters? Because I'm assuming that there's something about helping to give people opportunity that resonates for you as someone who managed to get out of it. How do you think about a good way to help people?

Well, that was another point I was coming to. Private, with your own money, and in practical ways, wherever possible, that affects them in the way that you've just touched upon, which is opportunity and the ability to grasp it. So I have a new wife, I'm pleased to say, and she has a stepson. I have a stepson as a result, and we've got him into school in the UK. And I said, look, what do you want to do here? He can stay in government school here, whatever.

and basically be trained in the underclass here to be a gas pump attendant or a gardener or a security man. Or we could send him to the UK if he passes admission, obviously, and so on. And we send him to the UK. That's good. And he seems to be prospering, which is good. So what I've now moved on to is a scheme to take two Creole children per hour.

from Mauritius into the school so that once we've got it full, we will have at least two children in every year at that school. Now, you know, I'm sure you're aware of the price of schooling in the UK. By the time we take the fees, the new VAT, the uniform, the equipment and the flights into account,

getting into some reasonable dough there, basically. But the thing I really like about it is it will be of practical help to lift some of those group of children out of their background to give them an opportunity

And, and this is the really important part, I think some of them, I hope, will think of coming back to Mauritius to change the community in general by the fact that they have the ability to hold down important roles in government or the private sector and so on. And that's the sort of thing that really I like.

I enjoy that a lot because I can see the practical consequences of it. Now, I don't want them to name the Terry Smith wing after me. I don't want to tell the story at all, in fact. In fact, in terms of getting these things to work, quite often does require some sort of input from the government to get schools to respond here and do that sort of thing. I say to the ministers, you can put your name on it. You can say this great initiative by me. You're a politician. You love this, right? Put your name on it, right? I don't want my name on it. Okay.

So your mother's almost never going to be reading about me doing this. She might read that the president of the Labour Party, Mauritius, has come up with this wonderful scheme to institute creole children into UK public schools. Yeah. It's good to have a mother who holds us all to account. She'll listen to my episodes and she'll say, yeah, I didn't like that one as much. That guy was great. So having exacting parents is helpful.

your mother, apart from her lack of knowledge of my personal affairs, which is understandable, but she should perhaps try and obtain some before. I think she's veering a little close to that UK dislike of success that I was talking about. It's an interesting question. Tell me about, obviously having grown up without money and then over the years you've become very wealthy and you bought a couple of hundred beautiful cars and the like and a yacht and stuff and

I mean, I write about this in the epilogue of my book, Richer, Wiser, Happier, where I talk to a lot of people who've hit the jackpot financially. And my sense is that, as I would put it, the toys and baubles are kind of nice, but they only go so far. And that in some ways, the real gift of the money is that it- Wiser than that. Say again? Wiser than that. In what sense? The toys and baubles.

Well, the toys and the baubles actually get in the way of pleasure quite often. Owning things of that sort mainly is a headache. So if you've got a boat, you end up having a crew, and then the crew, somebody quits, somebody has sex with somebody else, somebody's found out doing something here, they run it into the quayside at the top. And so really, I've got to say, the amount of real pleasure that one gets from doing those kind of things is not high in my view. So if you take the car collection, for example, I think

buying expensive and fast cars. I've got some expensive and fast cars, no doubt about that. But I've got a very wide range of cars. My earliest car is from 1903. I've got a section of cars which are failures. I deliberately collect failures. The reason for that is I think that they tell us things. I always say, why do we have postmortems on human beings? Well, it isn't just because doctors like messing around with cadavers.

is because if we die in suspicious circumstances or difficult to determine, they might want to know why, just in case there's a new illness or foul play and something needs to be done about it. And I like the idea of looking at cars, you can look at other things if you want to, but I like cars, that are failures and seeing what, if anything, we can learn. What can we learn out of these things? Because it might be useful to learn something from time to time about how other people have screwed up in history, you know?

Has it informed your skepticism about Tesla? Because you're, I mean, it's interesting when you think of the Magnificent Seven, right? I mean, you own a bunch of them, but you've said that Tesla and NVIDIA wouldn't get through your quality parameters and that Tesla probably never will. And I hadn't really made the connection that here you are a car expert. And like, is there some connection between your car collection, the failures and your skepticism about Tesla?

Remember my Stern Business School, you know, good company, bad company thing. Automobile companies are all bad without any kind of exception.

Every single one of them, Toyota, Ford, BMW, Mercedes, the whole lot, they destroy value. If you really like them, you can go and buy them all on a PEF4 if you want, and there's Tesla on 99 times. It's a bad business. Why is it a bad business? It's very capital intensive. You have to build factories, fairly obvious. And models development costs a lot of time and money. And then here's the problem. If

If I'm invested in consumer staples and you buy some toothpaste or cat litter or whatever you buy, when you run out, you have to go buy some more. And so that keeps, even in a downturn, you might eke it out, might squeeze the tube a bit better, might go buy some cheaper cat litter and a number two brand or I don't know,

So that's a little bit problematic, but it's not big problematic. Whereas if you've got a car and you feel a bit held up in a downturn, just keep the car. You don't have to change your car. I always quote Mr. Mahadu, who is my taxi driver here in Mauritius, who is an exemplar of this. He drove me around in his Toyota Axio for 360,000 kilometers. The poor chap died

And now his son's driving it. Toyota haven't made a bean off that car in 20 years, right? And it's still going strong, I can tell you. I see it on the roads floating around with his son driving it. It's a really bad business because what that means is that it's hugely cyclical. Unlike toothpaste and cat litter, when the demand stops, it just stops.

And so it's huge capital involved, big development costs and demand, which goes up and down enormously. And then you can get on to the other subjects involved, which is, so that's car companies and Tesla's a car company, which is, are batteries the future of electric vehicle transport? I mean, I don't know the answer, but there's certainly some reasons to be sceptical about it in terms of

range in terms of use of depletion of resources, in terms of disposal, et cetera, et cetera. The hydrogen fuel cell was an alternative if there was any instructor. So put it all together and I just think I'm a big fan

sort of admirer of many of Mr. Musk's achievements in a lot of respects. That man's got energy and balls, there's no doubt about that. But I'm not sure cars is the way forward. I mean, if cars is the way forward, why don't you just go and round up all the other ones and buy them? It's interesting. I mean, the fact that you've been collecting cars that date back to 1903 and the fact that you got a first in history all those years ago in Cardiff, like really informs your sense of wanting to own companies that endure

owning sectors that tend to persevere and be valuable through good times and bad. I mean, there's some interesting through line there in your life.

Well, the 1903 is an Oldsmobile curved dash, just to let you know. It's not got a steering wheel, it's got a tiller that you steer it with. And it was the first mass production car. The Model T Ford was not the first mass production car. The Oldsmobile curved dash was the first mass production car. And there's history involved in that. There's history involved in the Model T Ford. The Model T Ford is a fantastic story.

of an industrialist and what he achieved. I've got one. The stories behind the cars

in my view, are more important than mostly the cars themselves. I'm interested in the stories. I'm interested in the Ford GT40 from 1966 from Ford v Ferrari. And I've got one, and I like it. I can remember those episodes when I was a child of how Ford worked out and went on Sunday's sell on Monday and tried to buy Ferrari. And not only did they not get Ferrari, but he sold out the Fiat and dissed Henry Ford.

And, you know, upsetting Henry Ford was a bad thing to have done, really, because he went and built a car that beat them. And in fact, Enzo Ferrari managed to cause the development of at least two cars by upsetting, at least two by upsetting, with the Ford GT40 being one.

And the Lamborghini being another, Mr. Lamborghini made tractors. He still does make tractors. Oh, they make tractors. And he bought a Ferrari, which didn't work. Like they quite often didn't work then. And took it back to Ferrari at Maranello and said, you know, this is wrong with the clutch and that's wrong with the gearbox and so on. And apparently, Enzo Ferrari said, what do you do for a living? He said, I make tractors. And he was like, and Lamborghini was so upset. He went and hired a team of six young automotive engineers and designers. The oldest of whom I think was 26.

and built the Lamborghini Miura and demolished Ferrari's road cars. Ferrari caused nearly as many good cars to be built by annoying people as he did by actually making cars. Yeah, you also have things like the 1968 Ford Mustang, right? Which was the car that Steve McQueen drove in Bullet. And you have, I think, the Aston Martin DB5 that James Bond drove in Goldfinger. So you're living out the movies.

Yeah, I like movie cars. I think if you said what are you trying to do with a car collection, I mean, it's about... There's a guy who's got a museum in Naples in Florida called the Rebs Institute. And he's got a book called The Archaeological Automobile. And his thesis is that the car is the single most important object with which human beings interacted in the 20th century.

It's not a bad thesis. And I think he's certainly got a point. And I think there's an awful lot of human development history in cars through the multi-fold and industrialization and all those sort of things, the rise of Japan, the movies, TV shows, Morse's Jaguar, the Saints, Volvo.

their part in our consciousness is enormous, I think. And they evoke quite a lot with people, you know? And quite a lot of it, particularly with a certain age group, I think you find people talking in motor museums, and I've talked to a lot of people in motor museums about cars, is they'll say they'll find families walking around and somebody will be in tears. And I say, is there a problem? And they'll go,

My father had one of those. I remember it evokes emotion in them. And so I'm a believer in the stories. The one I like on the Model G Ford is Henry Ford with the Model G Ford put it on the production line. And in so doing, he cut the production time of a car from 12 hours to 93 minutes. And in doing so, he obviously cut the cost of production very significantly. Then he did the really clever bit. He cut the price.

What most people would have done faced with that is just made more profit. He cut the price. In so doing, he took the car from being a placing of the money classes into something where he invented the middle class in cars, the middle class market in cars. Cars then were sold to doctors and bank managers and lawyers and dentists. He invented the middle market by doing that. It's just a fantastic story, I think. For a man who, going back to how people are viewed, a man who many would review as a sort of robber baron industrialist.

Yeah. Nick Sleep and Kees Zakaria, who you may have come across from Nomad, who I wrote about a lot in my book, talk a lot about just seeing that scale economies shared model that they saw in Ford, and then they saw it in Costco, and then they saw it in Amazon. So it comes up again and again, this ability to resist pocketing as much money as you can. Nick Sleep : Yeah, I agree. I agree. Preston Pysh : Is there anything you take from

your history as a collector that you can actually apply to investing? I mean, I assume it's sort of somewhat different art, but there's something in terms of the pursuit of quality that runs through both. There's also the fact that most things will come around. Every time I've ever thought of buying something and I've thought, you know what, I'll give in. I'll buy a Lamborghini Diablo in black because the red one is never going to come up. Guess what happens one minute after you bought the black one?

Oopsie. Also, don't trust auctions. I know from cars that I've been involved in at auction that people at auction put other people logged on to bid and

and let them bid against their car to get the price up. And so you don't trust what... It's the same with dealing with markets. Do not trust what you see on the screen in share price action as equaling reality. There could be a lot of reasons why that price is moving or somebody's dealing. I've seen more than one example. I think there's one coming up this weekend at Kissimmee in Florida, where there's a very important car for sale where

If I were bidding on it, and I'm not, I would look at that and say, I wonder if there's anybody else there who is in fact the vendor. Because once the bidding starts and it's clear that somebody's committed to buying it, the vendor might use somebody to put in competing bids. Automatic, if he gets stuck with his own car, well, yes and no. Because if he gets stuck with his own car, they'll just ring you up later if you were the highest bid and say, that guy didn't come through with the money. Do you want to be good for your bid?

Before I let you go, Terry, because you've been incredibly generous with your time, I just wanted to ask you one final thing, which is actually about Sir Keith Park, who's this hero of yours, who was Air Chief Marshal. And one of the really tangible marks that you've left in the world is that there's now a statue of him in Trafalgar Square in the heart of London that was unveiled in 2010 because you led this campaign to get him honored. Tell us just a little bit about him and why...

His story resonated so deeply for you. He's a New Zealander and he came from New Zealand in World War I with the ANZAC Corps who fought with Gallipoli, which of course was utterly disastrous. And most people would have gone home then, I guess. He didn't. He volunteered for the British Army and fought in the Somme. He was invalided out from the Somme after being blown off a horse, artillery horse, by a shell. And it was just unfit for the army. So

So he volunteered for the newly formed Royal Flying Corps, where he flew Bristol fighters and was credited with 18 kills. Quite good going. He then transferred from the RFC to the newly formed RAF and won the trust of Hugh Dowding, who was the head of fighter command, who had a theory on how to combat German air power. The Germans had about 2,800 planes in the Luftwaffe. The RAF had about 650 fighter planes. So they were heavily outnumbered.

And Dowding realized that what they needed to do was not try and win the battle. There were lots of people, as you can imagine, at that time, particularly Lee Mallory, the guy who ran that group in Cambridge, who were, let's give Jerry a bloody nose. We don't need to win the battle. We just need to not lose. This is a bit like companies. We don't need to own the best company. We just don't want to own any bad ones.

he would feed the fighters in penny packets, if you like. And it became a standing joke with the Luftwaffe pilots, as it were, sort of gallows humour, the bomber pilots who, as the battle ground on would say, oh, here they come again, those last 10 Spitfires. Because if they'd been told they'd wiped out their era, and they hadn't. So they would always have some fighter planes in the sky because Operation Sea Lion, the invasion order for the invasion of Britain,

The first requirement was air supremacy because they were terrified of crossing the English Channel with the Royal Navy at large. So they had to be able to neutralize the Royal Navy from the air. They couldn't do that without air supremacy, and he was going to deny them air supremacy. Now, he needed a trusted associate who would implement that strategy, and that was Park. And Park did it to the letter, and people of war gained Park's decisions over that summer from June through to October, roughly. He made daily decisions about deployment.

And they never managed to significantly improve on his decisions in terms of trying to do it. He under intense pressure every day did that. And of course, he was himself a fighter pilot. He'd been in World War One as a fighter pilot and he flew his Hawkeye Hurricane OK-1 registration

around the airfield from day to day at the end of the day, finding out what had happened, what was happening in tactics, what morale was like, what the damage was, et cetera. So he had that. Anyway, he won the battle. In one of those wonderful pieces that only the Brits could do, Lee Mallory

Then interceded with Churchill to say that Dowding and Park weren't aggressive enough. And so after they'd won the frigging battle and got Dowding fired and Park sent off to training command. Anyway, he was sitting in training command when they realized they had a bit of a problem with Malta. Malta was the key island for trying to stop the Africa Corps being reinforced from mainland Italy.

and was in the way and it was being bombed to hell and back. And so they put Park in there to man the air defence. Smiling Albert Kesselring who ran the Luftwaffe must have thought he was a very unlucky chap because he managed to lose to Park twice because Park then beat him in bloody Malta as well. And he was a fighter on his way there. He was being flown in by a Bristol bow fighter and they spotted a German warship on their way into Malta and Park insisted that they press an attack. They were nearly shot down.

He was a fighter, he would fight, but he understood the men. There are lots of good photographs of him having Christmas lunch with the men and all that sort of thing. He would fly around the airfield and so on. Anyway, again, in typical British style, and in something I much admire in his regards, he left at the end of the war, went off to Asia for the end of the war in command, went back to New Zealand, was mayor of Auckland briefly.

and then just disappeared into obscurity and was gone. And there was a book by Stephen Bungay, the historian, who actually, funnily enough, was a historian who worked in lawyers and insurance, returned to history, which I thought was the best book on the battle, The Most Dangerous Enemy. And in it, he has this wonderful phrase. He says something that's really caught me, and he said, "Hark was like a wizard in an Arthurian tale. He traveled literally halfway around the world to defend the country, which wasn't even his own country.

And then having successfully done so, he just disappeared. And he said there is no memorial to him anywhere in the world, neither in England nor in museum. He said there's a Keith Park Crescent at Biggie Huero Drone. That's it. And I, my father was in the RAF and I was a keen flyer when I was young. I used to fly gliders and planes and helicopters. I qualified to fly all of them.

And I guess being a historian, reading Bungay and with that background, I thought I'm going to do something about it. And so I got the planning permission and I got the statue fabricated and I put up the memorial to him and got the Park family involved. Fortunately, the Park family supplied some very good members. His great-great-nephew was a movie guy and his great-great-niece turned up and pulled the cord to unveil it. The surviving Battle of Britain pilots all took part in the

the campaign and turned up for the events Trump because getting a statue put up in central London of a white straight war hero is not exactly what you call easy in this day and age.

Yeah, that's so interesting. So in some ways, part of, I mean, obviously there's this extraordinary heroism and his historic role is really important. I mean, there was a wonderful quote from one of the vice marshals saying he was the only man who could have lost the war in a day or even an afternoon. So I mean, his role in actually defending Britain was hugely important. But there's also the aspect of him just being

an unsung hero and him being an outsider. And I can see why that would resonate for you as well. Yeah, it was. I think so. Yeah, I think absolutely. It's interesting because when I was doing the Yukon Memorial, I went to New Zealand, I met the family, we're a very nice extended family. I said, this is what I'm planning to do. Do you approve? And so on and so on. We were all very supportive. They lobbied Parliament in New Zealand. We got every party in New Zealand to sign a letter going to the mayor of London saying that they wanted this to happen. That was all very good.

And we got to the unveiling and invited as many of the family to come as could. And we got these great, great niche to pull the cord with one of the, her and one of the battle of Britain. But I said, in the build up to it, it was interesting. I said, what do you think about inviting the German ceremony? Because I said, in some respects, in a spirit of reconciliation, maybe we should.

But I think you should tell me what you want to do. And they said Uncle Keith never forgave them. Every day he had to make these decisions to send young men to their deaths. Ever left him. And that comes back to your saying about him being an unsung and outsider and hero. Yes, all those things. And he made good tactical decisions every day, which worked and under extreme pressure over long periods of time.

And every time he knew that he took those decisions, he knew he was sending guys who were 20 years of age, many of them under-trained out to die. And he knew that, and he did it, because that was what his job was. But it didn't mean that he did it feeling very cheerful about it sometimes, I imagine.

Yeah, such a rich and interesting story. Thanks so much for sharing that with us. And thanks for being so generous with your time and your insights. I just really enjoyed spending the last few days deeply immersing myself in the mind of Terry Smith. So thank you. It's been a great pleasure getting to speak with you. One story to go with is about a car. And I think it's a car that exemplifies, if you were trying to get a link between cars and investment, there's a video on YouTube, which you can look up called, How a

one man made the perfect car. I commend it to you. And are you familiar with the McLaren F1? I mean, somewhat. I know that you have one. Okay. What happened was Gordon Murray, who was the man behind the wild success of McLaren under Ayrton Senna and so on, literally decided one day, actually at Geneva Airport, I think, with Ron Dennis and so on, they'd never made a road car before they were going to make a road car. And he decided that the basis for making it was they were going to make

the best road car that ever had been built, and I would suggest ever will be built, given the way that things have moved on since then. And I think he achieved it. He made a car which is extraordinary. I mean, I've got a 1995 example. It does 243 miles per hour. This is a 30-year-old car, right? Okay. It's extraordinary. And if you watch that, one of the things you'll find striking is

He made a very fast car. It's also a very safe car because it's a carbon fiber monocoque and so on. And it's actually a practical car. It's got three seats and it's got luggage. It comes with a golf bag. You can get your golf clubs in it. I don't play golf. He never took any interest in how fast it was going to go. And if you remember my owner's manual, one of the things I mentioned in there is obliquity, not aiming for the sort of objective. I say, I've been fortunate to meet an awful lot of very rich people

I can't think of one of them who got very rich trying to make money. They tried to make things and services. They tried to do things better than other people. They had an idea or an impetus to do things better than other people. And I think Henry Ford didn't want to make money. He wanted to make cars. And he wanted to make them better than other people made cars.

And that's what got him to where he went. And I think that McLaren F1 is a perfect example of obliquity. It's a fantastically fast car. And when you think that that was 30 years ago, making that thing, and by all accounts, Gordon Murray never once asked them to do any kind of calculation about how fast the car would go. It went fast as a result of how he designed and built it, not as a name. So in a way, I guess to round this off, it all goes back to the slogan on the ice cream truck. It's

It's quality that counts. I think it does. I think it is. And look, my view of that car is there will never be another car like it in the history of cars. I mean, you know, the idea that you have this thing that does 243 miles an hour. It has no power brakes. It has no power steering. It has no anti-lock brakes. It has no four-wheel drive. The only thing that that car has is you and the car. That's it, which is how Rowan Atkinson's car, Ralph Lauren's car, Elon Musk's car, and Bernard Prashrava's car all got crashed.

The car is more capable than the person sitting in the seat most of the time. Really interesting. It's been such a delight chatting with you. Back to the Magnum Force quote. Yeah. You can sit in that car and drive it, but you should be aware of something. Yeah, a man's got to know his limitations. I hope that is what you wanted or something like what you wanted. Oh, it's been a great pleasure. And one of these days I'll make it out to Mauritius and hopefully I'll actually see what it's like there.

Come without letting us know. We'd make you very welcome. And tell your mother that my check is going off in 16 days' time, and she would be shocked, shocked, rather like Inspector Renault and Casablanca at the number on it. Excellent. I certainly am. She'll be very happy to hear it. Terry, lovely meeting you. A real pleasure. All right. Take care.

All right, folks, thanks so much for listening to this conversation with the remarkable Terry Smith. If you'd like to learn more from Terry, you may want to check out the website of his investment firm, which you can find at www.fundsmith.co.uk. He's also written a couple of books, including an anthology of his writings from 2010 to 2020. It's titled Investing for Growth,

And it's subtitled How to Make Money by Only Buying the Best Companies in the World. I'll be back very soon with some more terrific guests, including the return of two of my all-time favorites, author Pico Aya and hedge fund manager Christopher Begg. In the meantime, please feel free to follow me on X at WilliamGreen72 or connect with me on LinkedIn. And as always, do let me know how you're enjoying the podcast. It's always a pleasure to hear from you.

Until next time, take good care and stay well.

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