Is Terry Smith really Britain’s answer to Buffett?

Recent years haven’t been great for Terry Smith’s investors, but Britain’s best-known fund manager isn’t doing too badly, pocketing an estimated £140 million (€160 million) over the last year even as profits at his fund business fell.

Often called Britain’s answer to Warren Buffett, Smith’s £22.3 billion Fundsmith Equity Fund has underperformed the MSCI World Index in each of the last three years. Does this mean Smith is losing his touch? No. Even the best investors go through cycles of underperformance – that’s normal.

Besides, Smith can point to his fund returning over 500 per cent since 2010, compared to 280 per cent for global stocks.

Nevertheless, it’s equally true that a decade of outperformance doesn’t justify the idea that he is a British Buffett. Distinguishing between luck and skill is difficult. One study calculated it takes eight years of data to be 50 per cent sure if a manager is genuinely skilled and 22 years to be 90 per cent certain.

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Smith’s mantra is “Buy good companies, don’t overpay and then do nothing,” and there is much to admire about his long-termist approach. Nevertheless, just as he should not be criticised for lagging in recent years, nor should he be lionised for a decade of outperformance.