Fundsmith’s Terry Smith Explains Underperformance and Sticks to Strategy

At the latest Fundsmith Annual Meeting, Terry Smith offered a clear reminder that disciplined investing often looks wrong before it looks right. He opens with disarming bluntness: “The one I would use to describe it for the last 12 months is poor.”

That admission sets the tone for a broader argument—not about short-term results, but about process and conviction.

Smith is equally direct in rejecting the idea that recent underperformance requires excuses. “We’re not making any excuses. We’re not trying to blame anyone or anything. Blame me if you want to blame anyone.”

Instead, he frames transparency as a duty, emphasizing that the goal is “to give you the information to make an informed decision.” This focus on investor agency is central to the Fundsmith philosophy, even when results disappoint.

The deeper issue, in Smith’s telling, is structural. Markets have become increasingly concentrated, and flows into passive vehicles have altered price behavior.

“This is a momentum strategy and momentum strategies can be very legitimate,” he notes, before warning investors not to misunderstand what they are doing.

His advice is unambiguous: “If you’re going to run a momentum strategy, buy things because they’re going up. And when they’re not going up, sell them.”

That clarity contrasts with what he sees as a growing tendency to rationalize price action after the fact.

Smith also highlights the consequences of these flows, pointing to exaggerated price moves and reduced counterbalancing forces in markets.

The result is an environment where valuation discipline can lag for extended periods. Yet he remains committed to consistency: “You may not like this very much, but we have quite deliberately stuck to what we said we’re going to do.”

That decision, he concedes, “has been costly, and it may continue to be costly,” but it reflects a long-term orientation rather than a reaction to short-term pressure.

Importantly, Smith rejects the idea that Fundsmith simply missed obvious winners. “It was blindingly obvious that that bunch of companies there were going to go up,” he says.

The choice not to own them was not ignorance, but judgment: “We’re not owning those companies because we think they’re actual problems and dangers in owning them.”

Against this backdrop, the firm’s core strategy remains unchanged. “Only invest in good companies. Try not to overpay. Try and do nothing.”

That simplicity is deceptive; it requires patience, especially when markets reward a different approach.

For investors, the takeaway is less about predicting the next cycle and more about understanding what strategy they are truly following. As Smith suggests, confusion between momentum and fundamentals can be costly. In an environment shaped by flows and concentration, clarity of purpose may matter more than ever.

Full meeting here: