How We Find Compounding Machines - Terry Smith

The lecture details Fundsmith Equity Fund's investment strategy, emphasizing investment in good companies with high returns on operating capital employed. It stresses the importance of return on capital over earnings per share, citing Warren Buffett's views and illustrating the airline industry as a negative example against Unilever as a positive one. Smith advocates for companies with secular growth potential, driven by consumerization, premiumization, or trends like pet care, and those with durable competitive advantages ("moats") such as strong brands or control of distribution. Smith advises against investing for income, advocating for reinvestment and long-term compounding, and highlights the limited need for diversification, advocating for a concentrated portfolio of 20-30 stocks.