Fundsmith’s defining moment

The bear market is putting Terry Smith's quality growth strategy to the test - is he right to be defiant as value outperforms?

Photo by Anne Nygård

Terry Smith, the fund manager, has spent more than a decade outwitting the market with his particular brand of ‘quality’ investing. Buying highly profitable, cash generative, financially stable firms without overpaying and then sitting tight has paid off handsomely for the Fundsmith Equity Fund. After 12 years since launch, it’s currently sitting at a size of about £22+ billion.

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Crypto: no country for old men

My long-held view that crypto currencies are little more than 21st century tulips is proving on the (fiat) money - and I won't be buying the dip

Photo by olieman.eth

The sun may be shining outside, but for crypto winter has well and truly set in. Having hit $3tr on November 21, the total cryptocurrency market capitalisation slipped below $1tr this week, with more than half - $1.2 trillion - of that loss coming in the last 77 days.

The falls have been prompted by major collapses of most altcoins, not least the failure of so-called stable coin Terra Luna, which lost its investors $40bn. According to data from CoinGoLive, 98.5% of the nearly 13,500 cryptocurrencies are down more than 90% from their top, and 95.9% have lost 99.9% of their peak value…zero, effectively. Industry experts are predicting that many will collapse altogether, along with the exchanges and hedge funds that have sprung up around them.

Crypto platform Celsius – which amassed $20bn offering its clients interest rates on crypto holdings as high as 18% - has already frozen withdrawals - and rumours are circulating that crypto hedge fund Three Arrows Capital is facing margin calls. Nasdaq-listed crypto exchange Coinbase – which once boasted 98m users – has laid of a fifth of its workforce, with its shares down 80% this year.

Even bitcoin, which accounts for roughly two-fifths of the entire crypto’s market value, is collapsing, down by a fifth in the last few days, taking its total drawdown to 70% from the $69,000 top, while NFT currency Ethereum is down 80%. Data suggests bitcoin miners are sending coins to exchanges in unprecedented volumes, suggesting selling pressure is high.

In short, it’s a meltdown. But just as there were many crypto cheerleaders encouraging people to buy on the way up, so there will be many telling people that the falls are a great time to buy the currency of the future.

I’d be the first to admit that the crazy world of crypto has always scared the hell out of me. Maybe I just don’t get it…perhaps, even, I am too old to get it. As I march through middle age I wonder if maybe my brain isn’t what it used to be, and that the world has moved well-beyond my comfort zone.

On reflection I may have been too hard on myself, though - there is a lot more in it now than when it was a flexible sponge, and I’m fairly sure I know how to see when things don’t add up. And, however alluring the narrative – fiat money debasement and monetary equality primarily – the case for cryptocurrency often seems a case of 1+1+=3. It doesn’t work as a store of value, as daily swings in price show, and hardly anyone owns it because you can barely spend it – as Adam Smith once said, “money is like muck…useless unless it is spread.”

And while there is a case to be made for blockchain technology as a way to replumb the web more democratically, questions over reliability and energy efficiency still mean any widespread usage is a long, long way off.

Whatever the arguments in its favour, it is hard to hide from the fact that crypto’s popularity is largely because it has been seen by many as a way to get rich quickly, thus creating a feedback loop that shot prices higher – the inevitable result of which is that they have come crashing down again. In other words, crypto has been a high beta play on risk. I lived the dot com boom and there are many similarities, not least the cult-like fervour with which crypto enthusiasts defend their actions.

It’s really that simple – that speculative assets, whose fundamental value is impossible to determine, will wither in the heat of a risk-off world. And that’s why we won’t be writing about it again, and why I’m not remotely tempted to BTFD. If you want crypto in your portfolio and want to read about it, that’s fine, lots of people have lots to say and bridges to sell you.

But we like the boring bit better – get rich slowly with shares, with real businesses and economic value behind them. My old man’s brain can make sense of that.

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Ready for take-off?

Why it could be time to jump on board a recovery in the travel and leisure sector

Photo by Eduardo Velazco Guart

Apologies for my absence over the last week or so, which I’ve spend recovering from what I thought was a mild dose of the Omicron variant. Having suffered little during the first week with what seemed like not much more than a stinky cold, I’ve spent the second – since testing negative – feeling utterly awful. Shortness of breath, fatigue and a foggy head, thankfully now improving, has meant it’s taken all the concentration I can muster to get a few words down on paper.

Perhaps, then, the World Health Organisation is right that we should avoid the temptation to think that the pandemic is over or that Omicron is a mild disease – as I had done in week one of sniffly self-isolation. Cases are still rising in Europe and some developing world countries, like India. And my own brush with the bug leads me to think there is indeed something very un-cold-and-flu-like about it.

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The green hydrogen gamble

Environmental concerns have prompted a second look at hydrogen as a route to a greener future, but buying into the trend is expensive

I’ve spent the last couple of weeks looking at hydrogen and I have to say it is a rabbit hole I wish I had never gone down. It’s taken me hours of research and 2,000 discarded words to come to a conclusion that can be summed up in just one word: uncertain.

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