An article by James Scott-Hopkins, Managing Director, Irongate
I recently watched the Fundsmith annual shareholder's meeting hosted by their Chief Investment Officer, Terry Smith. He demonstrated a compelling reason why investors should ignore fund volatility and concentrate instead on the businesses they have invested in and towards their long term prospects.
Of the many interesting things that he discussed, he cited a particular example of one company he purchased for his fund and why holding out was the best result.
On the 31st of December 2007 the share price of this particular company was $7.07 and by the following Spring on the 26th February 2008 it had fallen to $4.26, a drop of -39.9%. In fact, this time period has a particular resonance with the drop in markets that we have seen this year. He goes on to say that by the end of 2008 the stock was valued at $3.05, a total fall of -56.9%. At that point he would well have understood why investors might be concerned and question his competence as a fund manager.
However, were you able to put up with this and allow Terry to continue to manage the fund, the share price eventually closed on the 4th February this year at $172.39, generating a compound annual growth rate of +25% .
If you were to look back over the years to when the share price fell as much as it did you would have expected to see the dramatic drop in the share price, but in fact it is unnoticeable alongside all the usual ups and downs of the market.
The company in this example is Apple.
"Hold on; hold fast; hold out. Patience is genius." - Georges-Louis Leclerc
Fundsmith is one of the funds held in the Irongate Bespoke Portfolio.
The value of an investment can go down as well as up.
You may get back less than you invested.
Past performance is not a reliable guide to future performance.
The opinions expressed are those of Irongate, this material is not a recommendation, or intended to be relied upon as a forecast.