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Terry Smith made a lot of waves with his latest investment letter.
He doesn’t typically trade much, but in the first 6 months of 2026, he turned over more than 50% of his portfolio, and announced a shift in his investment style.
It seems dramatic, and it is.
Terry is making these huge changes because he believes the underlying structure of the market is changing.
This will be the first of a three-part series where we’ll talk about what Terry is seeing, if he’s right, and most importantly what you should do about it.
Let’s dive in!
Who is Terry Smith?
Often called “the English Warren Buffett,” Terry Smith is one of the world’s top Quality Investors.
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He’s typically been a very straightforward and independent investor.
Here’s a quick bit of background on Terry.
Grew up in East London, was at the top his class in history at Cardiff, and entered banking at Barclays in the 1970s.
In 1992, he wrote Accounting for Growth, a book that exposed corporate accounting tricks and was so controversial that it got him fired.
Launched Fundsmith in 2010. Today, it manages £12 billion and has achieved an impressive 13.1% CAGR after fees since inception.
His Investment Style
Terry Smith’s philosophy is simple.
He boils it down to three steps.
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1. Buy Good Companies
Terry Smith looks to buy high-quality businesses that dominate their markets.
High ROCE: Looks for a Return on Capital Employed of 15–20%+
Wide Moats: Focuses on companies with pricing power and high gross margins
Cash is King: Prioritizes strong organic growth and businesses that convert a lot of their net earnings into free cash flow.
“I am constantly amazed at the number of people who talk about investment and spend most or all of their time talking about asset allocation, sector weightings, economic forecasts... and never mention any need to invest in something good.” — Terry Smith
2. Don’t Overpay
While quality comes first, valuation still matters.
He is willing to pay a fair premium for an exceptional business but tries to avoid overpaying.
3. Do Nothing
Minimizing trading keeps fees low and lets compounding do the work over time.
Patience has been one of Terry’s main advantages.
His Performance
Fundsmith does hold a portfolio of companies with great fundamentals.
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And over the long term it has allowed the fund to outperform, with a CAGR of 13.1% after fees.