The Lemon Fool

Finally Fundsmith buys Amazon after years of Terry saying it was a crappy business where it was subsidising sales of products. Shame he didn’t want to buy it 3-4x cheaper in 2016/2017

The other one he may buy is Google since it’s Roic is now over 20%, he had to wait for it to go up 300% over the last 5 years before he could buy it,

Is this a case of going big to move the needle?

Is it just me that finds this strange? I’ve just rewatched Terry’s comments on this from the 2021 AGM in which he says, essentially, that the team don’t like Amazon as the retail part doesn’t make (much) money and is cross subsidised by the web services business. If he could take just the web services part he’d be interested. This was only c. 8 months ago.

Other than speculation about the web services part being spun off, can anyone make an educated guess as to what has changed?

Thanks in advance. To be clear, I’m not being critical as the FS team have been v good for me and I remember particularly being a bit aghast when they bought Facebook which so far has been a good investment and prescient.

Any views welcomed. Thanks.

Kenton23 wrote:Is it just me that finds this strange? I’ve just rewatched Terry’s comments on this from the 2021 AGM in which he says, essentially, that the team don’t like Amazon as the retail part doesn’t make (much) money and is cross subsidised by the web services business. If he could take just the web services part he’d be interested. This was only c. 8 months ago.

Other than speculation about the web services part being spun off, can anyone make an educated guess as to what has changed?

Thanks in advance. To be clear, I’m not being critical as the FS team have been v good for me and I remember particularly being a bit aghast when they bought Facebook which so far has been a good investment and prescient.

Any views welcomed. Thanks.

I suspect the retail business may have been re-rated by Fundsmith (unless they suspect a break up to happen soon?). With the end of the cookie and Amazons ad business likely to benefit from this it could make it an even more interesting proposition. The ad stream is probably not talked about enough and is leading the way when it comes to retail media.

crazypanda wrote:

Kenton23 wrote:Is it just me that finds this strange? I’ve just rewatched Terry’s comments on this from the 2021 AGM in which he says, essentially, that the team don’t like Amazon as the retail part doesn’t make (much) money and is cross subsidised by the web services business. If he could take just the web services part he’d be interested. This was only c. 8 months ago.

Other than speculation about the web services part being spun off, can anyone make an educated guess as to what has changed?

Thanks in advance. To be clear, I’m not being critical as the FS team have been v good for me and I remember particularly being a bit aghast when they bought Facebook which so far has been a good investment and prescient.

Any views welcomed. Thanks.

I suspect the retail business may have been re-rated by Fundsmith (unless they suspect a break up to happen soon?). With the end of the cookie and Amazons ad business likely to benefit from this it could make it an even more interesting proposition. The ad stream is probably not talked about enough and is leading the way when it comes to retail media.

Thank you. Interesting.

I have no doubt Terry will be asked about this at the next AGM!

ADrunkenMarcus wrote:I have no doubt Terry will be asked about this at the next AGM!

Perhaps he can get away with it by quoting Churchill (in 1942 to the House of Commons)

Neither shall I be deterred from doing what I am convinced is right by the fact that I have thought differently about it in some distant, or even in some recent, past.

It'll be something like when the facts change, I change my mind.

I'm pretty sure that Julian Robins finally convinced him that AMZN's retail profits have been understated for years. Otherwise such a huge business could never have been created. The potential in the cloud, advertising and distribution businesses tipped the balance.

Now where is this new investment that is still only 0.4% and what is it?

Well, from the depths of Italy, I have seen how Amazon has changed in the last few years. I guess that if it's being done in Italy, then it's everywhere in Europe.

Three years ago we had the option of having stuff delivered to post offices. It's taken Italians a long time to realise that houses may be empty. Traditionally, the wife, mother-in-law or cleaner would be there. However, collecting stuff from the P.O. was a real pain. Long queues.

Two years ago, the Amazon lockers started. Now we have lockers in a supermarket very close to our village where we can collect Amazon purchases. Simply type in a code. It's an absolute game-changer! So simple!

Steve

PS the only cloud on the horizon is the safety angle, only in the last 6 months, where they will no longer deliver any liquids to the lockers. So After shave, eau de toilette etc cannot go there.


Steve

I remember him saying that Walmart and Costco were more interesting businesses than Amazon, or words to that effect. It'll be interesting to hear his explanation.

Fluke wrote:I remember him saying that Walmart and Costco were more interesting businesses than Amazon, or words to that effect. It'll be interesting to hear his explanation.

Along with Target, WalMart and Costco are the only US big box general stores that have consistently done well (*). In the Global Financial crisis, WalMart shares actually went up, as people craved cheapness over anything else. Costco is a membership-based chain of big box stores that sells items ridiculously cheap as long as you buy in huge quantities, e.g. a 144 pack of toilet paper. Americans love stuff like that.

Meanwhile Macy's, JC Penney and all the other traditional department store chains are struggling, dying or have already died. The winners stack 'em high and sell 'em cheap.

(*) Lowe's and Home Depot have done great as well but are just hardware, think B&Q.

Just as I have sold my Amazon shares, which I have had for 7+ years and have made a stonking return on, Terry goes and buys in . My thinking was that at their present enormous size any further increases in SP would be dramatically slowed. There seems to be positive comment about Amazon in the press too, maybe off the back of Fundsmith's decision. I have a large investment in Fundsmith and other IT holders (SMT etc) so I guess I will just trust their judgment and still retain that way an investment into what is an amazing company.

MM

Insight from Terry Smith towards the end of this video about him buying into Amazon for the Fundsmith fund after saying for long he wasn't interested. For those who are familiar with Smith's frequent interviews, you may with to fast forward through the video since much of it says nothing new. Also he addresses, again, the thinking that at £27 billion the fund is too big for it's own good.

https://play.acast.com/s/a4c5de36-8260- ... 424cf6e130

BullDog wrote:Insight from Terry Smith towards the end of this video about him buying into Amazon for the Fundsmith fund after saying for long he wasn't interested. For those who are familiar with Smith's frequent interviews, you may with to fast forward through the video since much of it says nothing new. Also he addresses, again, the thinking that at £27 billion the fund is too big for it's own good.

https://play.acast.com/s/a4c5de36-8260- ... 424cf6e130

Thanks for this. I disagree about only listening to part of the interview though. You'd have to be a pretty arrogant investor to think you could find a better way to spend 45 minutes of your time. There are some fascinating points he makes in the interview (in particular, the idiocy of merely using the PER to compare companies due to the way the profit and loss works in different industries). The interviewer is really good and coaxes some interesting information from him, including his re-appraisal of Amazon, the reason he sold IHG, why ROCE is a more important metric than operating margin, and the story about the $1.9 billion hole he found in the IBM accounts around the time Berkshire bought it. IMHO it is always worth listening to what very successful investors have to say, and Terry Smith is certainly one of them.

However, as someone that does read accounts and was lucky to escape Patisserie Valerie with a large profit, I'd love to know how he could have spotted the fraud from the accounts as he claimed in the interview? When you look at cash on the balance sheet, how on earth can you tell that it does not actually exist without access to the company's bank accounts? I might email Fundsmith on this point because if there is a way of spotting it, I'm sure Terry will know! The only thing I could spot after the event was that the working capital profile looked wrong for a restaurant business i.e. the suppliers effectively fund the business by supplying ingredients up front and get paid well after the final product has been sold and the cash is in the till. This was not the case with PV.

All the best, Si

#462528

Post by BullDog » December 2nd, 2021, 9:23 am
Insight from Terry Smith towards the end of this video about him buying into Amazon for the Fundsmith fund after saying for long he wasn't interested. For those who are familiar with Smith's frequent interviews, you may with to fast forward through the video since much of it says nothing new. Also he addresses, again, the thinking that at £27 billion the fund is too big for it's own good.

https://play.acast.com/s/a4c5de36-8260- ... 424cf6e130

Yes I also thought it was well worth 32 minutes listening to all of it (I listened at 1.4x speed). Also liked the Amazon explanation and the differences of taking spending through the P and L or balance sheet.
One question I would have liked to have been asked was about Fundsmith selling so many UK stocks (I think there are just Diageo and Unilever hanging on in there now). I had cut my stake by approx 25-50% in Sage, Intertek and Reckitts after FundSmith sold, but decided I was not too concerned about the Intercontinental Hotels sale, and indeed even bought some more on the recent weakness (below £45). None of the three sales have had anything particularly concerning happen to them yet, in fact the areas of concern at Sage and Reckitts may be being sorted out. Still it was good to hear as I guessed that IHG was mainly a valuation thing (I guess they exited around £52). Perhaps the UK stocks were also a size/tidying up exercise- think from the country data the companies sold were pretty small in terms of the fund and maybe if Terry didn't want to buy more, he figured he may as well just sell them.
Would also have been good to have heard Terry's thoughts on his payment companies, especially Paypal, which was his second largest holding at the end of October I think, but has been falling rapidly (granted it had been very strong from the bottom of the pandemic until July 2021)

KnightOfSpring wrote:

#462528

Post by BullDog » December 2nd, 2021, 9:23 am
Insight from Terry Smith towards the end of this video about him buying into Amazon for the Fundsmith fund after saying for long he wasn't interested. For those who are familiar with Smith's frequent interviews, you may with to fast forward through the video since much of it says nothing new. Also he addresses, again, the thinking that at £27 billion the fund is too big for it's own good.

https://play.acast.com/s/a4c5de36-8260- ... 424cf6e130

Yes I also thought it was well worth 32 minutes listening to all of it (I listened at 1.4x speed). Also liked the Amazon explanation and the differences of taking spending through the P and L or balance sheet.
One question I would have liked to have been asked was about Fundsmith selling so many UK stocks (I think there are just Diageo and Unilever hanging on in there now). I had cut my stake by approx 25-50% in Sage, Intertek and Reckitts after FundSmith sold, but decided I was not too concerned about the Intercontinental Hotels sale, and indeed even bought some more on the recent weakness (below £45). None of the three sales have had anything particularly concerning happen to them yet, in fact the areas of concern at Sage and Reckitts may be being sorted out. Still it was good to hear as I guessed that IHG was mainly a valuation thing (I guess they exited around £52). Perhaps the UK stocks were also a size/tidying up exercise- think from the country data the companies sold were pretty small in terms of the fund and maybe if Terry didn't want to buy more, he figured he may as well just sell them.
Would also have been good to have heard Terry's thoughts on his payment companies, especially Paypal, which was his second largest holding at the end of October I think, but has been falling rapidly (granted it had been very strong from the bottom of the pandemic until July 2021)

Unilever has been sold. TBH, I wish I had followed suit and sold it too. Price has dropped since FS sold it.

Unilever has been sold. TBH, I wish I had followed suit and sold it too. Price has dropped since FS sold it.

Where did you find out Unilever had been sold? It is mentioned in July 2021 factsheet and I think since then they say they have exited from just Becton Dickinson and Intercontinental Hotels. Fundsmith Sustainable Equity Fund still holds Unilever although this is not what either of us are referring to.
I wish I had sold Unilever before the price drop, but this would apply to anything, as I would be able to buy it back and have more shares (unless I had missed out on more dividend income than the price drop). Unilever's stake in Hindustan Unilever is what I find most attractive about holding Unilever.

KnightOfSpring wrote:

Unilever has been sold. TBH, I wish I had followed suit and sold it too. Price has dropped since FS sold it.

Where did you find out Unilever had been sold? It is mentioned in July 2021 factsheet and I think since then they say they have exited from just Becton Dickinson and Intercontinental Hotels. Fundsmith Sustainable Equity Fund still holds Unilever although this is not what either of us are referring to.
I wish I had sold Unilever before the price drop, but this would apply to anything, as I would be able to buy it back and have more shares (unless I had missed out on more dividend income than the price drop). Unilever's stake in Hindustan Unilever is what I find most attractive about holding Unilever.

You know, I think you're right. I apologise if I made a mistake. I can't see a Unilever sale in the last 6 months monthly fact sheets. In fact, having looked, it is Blue Whale Growth Fund (another fund that I follow) that sold out of Unilever this last few months. Sorry about that.

You know, I think you're right. I apologise if I made a mistake. I can't see a Unilever sale in the last 6 months monthly fact sheets. In fact, having looked, it is Blue Whale Growth Fund (another fund that I follow) that sold out of Unilever this last few months. Sorry about that.

No problem. I'm not normally so sharp on these things but Unilever is about 14% of my portfolio and Terry Smith is my favourite Fund Manager so it's something a keep a close eye on. Terry certainly made reference to Unilever was being in danger of being kicked out but has since said that with the distribution network it has "it should probably be alright".

KnightOfSpring wrote:

You know, I think you're right. I apologise if I made a mistake. I can't see a Unilever sale in the last 6 months monthly fact sheets. In fact, having looked, it is Blue Whale Growth Fund (another fund that I follow) that sold out of Unilever this last few months. Sorry about that.

No problem. I'm not normally so sharp on these things but Unilever is about 14% of my portfolio and Terry Smith is my favourite Fund Manager so it's something a keep a close eye on. Terry certainly made reference to Unilever was being in danger of being kicked out but has since said that with the distribution network it has "it should probably be alright".

Thanks and good luck with ULVR. I think next week, I might place an auto sell on ULVR stock so that if the price gets back to what I paid, it gets sold. I am not so far away that a day or two uptick in the price wouldn't break even for me. I think I will start to think about reinvesting the money. I have pretty much lost faith in ULVR.