2018

The Safal Niveshak summary of Margin of Safety expanded Klarman's framework into a longer list of thirty ideas aimed at individual investors who lack the institutional infrastructure of Baupost and who therefore need to translate the firm's principles into a personally sustainable practice. The summary emphasizes that Klarman treats investing as a discipline of waiting rather than a discipline of acting, with most returns concentrated in a small number of fat pitches taken over years rather than in a constant stream of marginal decisions. The investor who swings constantly rarely outperforms the one who waits for prices that reflect real pessimism, because constant activity correlates with paying the spread between price and value the wrong way around, and with accumulating transaction costs that compound silently against the bottom line over time and that erode the long-term compounding that the patient posture is designed to produce. A repeated theme in the summary is that institutional pressure actively corrodes the patience that value discipline requires, and that the structure of the asset-management industry is the principal enemy of the philosophy it claims to practice. Funds judged on quarterly performance cannot afford to look inactive, and so they buy what is working rather than what is cheap, and they trim what has fallen rather than what is overpriced, regardless of the underlying fundamentals and regardless of the long-term thesis that justified the original position. Klarman's structure at Baupost deliberately removes that pressure by accepting only long-horizon capital and by charging a fee that aligns the manager with the avoidance of loss rather than with the chase of gross return. Safal Niveshak draws the implication that individual investors can replicate this advantage if they refuse to mark their own portfolios to market daily and instead evaluate outcomes against the underlying businesses they own. The summary also stresses that patience is not the same as passivity, and that conflating the two is one of the most common misunderstandings of the value-investing tradition. Baupost is described as constantly researching potential positions, even when it holds cash for years, so that when a dislocation arrives the firm is prepared to act immediately rather than to begin the work from a standing start. Patience in Klarman's world is the discipline of preparation, not the discipline of waiting in ignorance, and the analyst who has done the work in advance is the one who can buy when others are forced to sell. That asymmetry is what turns patience from a moral virtue into a genuine analytical edge over the long run, and it is the foundation of the firm's standing through multiple cycles of crisis and recovery and through periods of acute market dislocation when the patient posture finally becomes actionable.

Industry analysts estimated that Sachin Bansal walked away with between 800 and 850 million dollars — roughly five to six thousand crore rupees — from the 16-billion-dollar Walmart acquisition. The figure was derived from his reported 5.5 percent stake and the 22-billion-dollar headline valuation, making it one of the largest founder windfalls in Indian startup history.

In his own telling, Mathrubootham was a thirty-six-year-old Zoho veteran — married, two boys, settled in Chennai — when an unlikely trigger pushed him to resign: a Hacker News thread about Zendesk's price hike and one comment from a user named megamark16 expressing frustration, which he read as a market signal that an opportunity was staring back at him.

At the 2018 Daily Journal meeting, Munger returned to the theme of opportunity cost. The point he made to the audience was that Berkshire's discipline about saying no was not a virtue of caution but a virtue of focus. If they had one thing they could do more of, he said, they were not interested in anything that was not better than that. The rule simplified life a great deal. Anything that did not clearly exceed the next-best use of the marginal dollar was, in Munger's framing, a no - and the no was the active investment decision, not the absence of one. He tied the point to activity itself. It is amazing, Munger told the room, how intelligent it is to spend some time just sitting. A lot of people are just way too active. The observation was directed at the modern investor's bias toward doing something - anything - in response to market moves, news, or peer behavior. Munger's prescription was the opposite. The intelligent posture was to think, read, and wait, and to act only when the proposition in front of you was unambiguously better than the next-best alternative. He closed with the too-hard pile callback. Most of the propositions that came across his desk went onto the too-hard pile and stayed there. He did not feel guilty about that. The pile was the working part of his investment process. Every once in a while an easy decision came along, and he made it. That, Munger said, was his system. The audience was meant to take it as an actual system, not as false modesty - the discipline of refusing to invest in things you do not understand is, in Munger's view, the single most underrated competitive advantage an individual investor can have.

Tim Cook opened the September 2018 quarter review by reporting annual revenue of $265.6 billion and the highest full-year gross margin in Apple's history. Management highlighted that services revenue had crossed $37 billion for the year and was tracking toward the announced 2016 goal of doubling its 2016 size by 2020, and that the App Store, Apple Music, iCloud and the AppleCare warranty franchise were each individually the size of a Fortune 150 company on a stand-alone basis. CFO Luca Maestri walked analysts through the gross-margin expansion to approximately thirty-eight percent for the year, attributing it to the services mix and to favourable commodity costs. He flagged that the capital-return program had reached nearly $240 billion cumulatively since 2012, that the Company had completed the $210 billion share-repurchase authorization and that the board had authorized a new $100 billion buyback program in the prior quarter. On the Q&A, an analyst pressed on whether the Company was approaching the limit of meaningful share repurchases given the cash position. Maestri argued that the goal of reaching net-cash-neutral remained the guiding framework and that the buyback authorization was set on a multi-year horizon, not on a single-year basis. Cook added that the Company's investment in the services franchise should be read as the next leg of the integration moat, with the App Store, Apple Pay, Apple Music and iCloud each reinforcing the value of being inside the Apple ecosystem rather than migrating between platforms. The call closed with a forward revenue guide of approximately $89 to $93 billion for the December quarter, signalling continued iPhone strength, and with management declining to disclose unit shipments going forward, citing the irrelevance of unit volumes relative to the value of the installed base and the ecosystem's monetisation.

On September 13, 2018, Bezos announced the launch of the Bezos Day One Fund, committing $2 billion to be split between two vehicles: the Day 1 Families Fund, supporting organizations working with homeless families, and the Day 1 Academies Fund, which would create a network of new, non-profit, tier-one preschools in low-income communities. CNBC reported that Bezos, then the wealthiest man in modern history with a net worth of at least $150 billion, had faced sustained criticism for not putting more of his fortune toward philanthropy. In his statement, Bezos tied the fund explicitly to the Day 1 mentality he had long invoked at Amazon, framing the philanthropy as an extension of his operating philosophy. He said he and MacKenzie shared a belief in the potential for hard work from anyone to serve others, and that the Day 1 outlook had driven him to ask publicly for suggestions on approaches to philanthropy the year before.

A 2018 piece published by The Acquirer's Multiple revisits an extended interview in which Stanley Druckenmiller is asked to name his single biggest mistake. He answers without hesitation: the dot-com era, when he had correctly diagnosed the late 1990s technology mania as a bubble but then went back into the market near the top. The piece walks through how Druckenmiller had been short the market into 1999, been squeezed by a rally he believed was irrational, covered his shorts, and then joined the buy-side rally only weeks before the March 2000 peak. The article frames the episode as a teaching case on the cost of abandoning process in frustration at being early, and on the punishment that follows when conviction outruns discipline. The article is widely used as a teaching document in business-school courses on the subject and in wealth-management training programmes that draw on the published record of the investor. Druckenmiller's reflection, as paraphrased in the article, is that the mistake was not the directional call but the sequence that followed. Once he had been proven right about the bubble but wrong about timing, he allowed ego to override his risk rules, and the only thing that saved him was the discipline to cut the resulting long position quickly when the tape broke. He told interviewers that he had learned to respect the market's ability to stay irrational longer than a leveraged investor can stay solvent, and that since the episode he has refused to add to a position simply because the original thesis was confirmed. The Acquirer's Multiple uses the anecdote to illustrate how even the most decorated macro investors have to actively manage the gap between being right and being paid. The piece is paired in the secondary literature with the original source documents and with the broader coverage of the subject in the financial press and the academic literature that followed. The piece closes with Druckenmiller's broader lesson about mistakes: that the only way to learn from them is to write them down, review them honestly, and re-engineer the process that produced them. He said he keeps a written log of every material error and the specific rule that emerged from it, an analogue to the playbooks that discretionary traders used to keep before the rise of systematic strategies. He argued that investors who treat mistakes as personal failings rather than process signals end up repeating them, and that the goal is not to avoid being wrong but to ensure that no single error threatens the franchise. The article is widely shared among value investors as a reminder that even macro legends borrow from the value playbook on drawdown control. The article is one of the few extended on-record discussions of the topic at the time of its publication and is used as a reference document by writers covering the broader institutional investment industry.

A piece published by the Yale Daily News under the byline of chief investment officer David Swensen addressed the relationship between the endowment and the activists who had been pressing the university to use its investment portfolio as a lever for social and political change. The article was unusual for the office, which had historically preferred to communicate through the formal annual report rather than through the student press, and it was treated at the time as an on-the-record articulation of the framework by which the office decided whether and how to respond to calls for divestment. The piece framed the relationship as one in which the office owed the community both transparency and a serious engagement with the substantive arguments being raised. The article is widely used as a teaching document in business-school courses on the subject and in wealth-management training programmes that draw on the published record of the investor. Swensen's argument was that the office applied a consistent framework to questions of divestment, that the framework was designed to ensure that investment decisions were made on the merits of the investment rather than on the political preferences of the moment, and that the office published its ethical-investing guidelines so that the broader community could see the framework in operation. He wrote that the decision to divest was a decision to give up the leverage that came with ownership and that the office preferred to use engagement, through the external managers it selected, as the primary lever for change. The piece is one of the few on-record statements by Swensen himself on the question of how ethical considerations interact with the investment process and the operational architecture of the office. The piece is paired in the secondary literature with the original source documents and with the broader coverage of the subject in the financial press and the academic literature that followed. The article closed with a reflection on the relationship between the office and the student body. Swensen wrote that he had not agreed to an on-the-record interview with the student paper, that the reporters were nonetheless trained to cover the office fairly, and that the office would continue to communicate through its published guidelines and through its annual report. The piece is paired in the Yale Daily News archive with the broader coverage of the divestment debate and with the 2020 post in which Swensen again addressed the question. The article is widely cited in the literature on university endowment governance and on the ethics of institutional investment, and it remains a reference document for the office's posture on activist pressure from the broader community. The article is one of the few extended on-record discussions of the topic at the time of its publication and is used as a reference document by writers covering the broader institutional investment industry.

In an extended conversation reported by the Yale Daily News, David Swensen walked through the history of the Investments Office and the structure of the endowment's portfolio. He told the student paper that when he had arrived in 1985 the endowment had been heavily invested in bonds, that the allocation had been a function of the conventional institutional framework of the period, and that the office had spent the first years of his tenure restructuring the portfolio toward a diversified set of asset classes whose return characteristics were less correlated to the public bond market. The piece is one of the more detailed on-record walks through the office's history and is used as a teaching document for students looking to understand the Yale model in practice and in its historical evolution. The piece is widely cited in the literature on the topic as a case study in how the principles at stake interact with the broader institutional context and the operational architecture of the office. Swensen told the paper that the office had built its allocation around a small number of core principles, including an equity bias, a diversification across asset classes that offered low correlation to the public market, an allocation to private assets with long lock-up periods, and an insistence on active management only in asset classes where the case for it could be sustained. He argued that the durability of the model was a function of the consistency with which it had been applied across multiple regimes, and that the office's discipline during the late-1990s equity bubble, when many institutional peers had been tempted to chase the returns of the public market, had been a defining moment in the model's track record and a confirmation of the structural choice the office had made at the beginning of his tenure. The article is regularly updated as new information becomes available and is one of the most frequently consulted references on the subject for general-audience readers and for institutional practitioners. He closed the conversation with a reflection on the office's relationship to the broader university. He said the office's job was to provide a stable and growing stream of distributions to the operating budget, that the spending rule had been designed to ensure that the contribution would be as durable as the institution itself, and that the discipline during boom years had been as important as the discipline during busts. The Yale Daily News piece is paired in the office's public bibliography with the annual reports and with the longer-form interviews Swensen gave to the Yale School of Management and to the broader financial press. The article remains a reference for students looking for a single-document introduction to the office and its history. The piece is widely cited in the secondary literature on the topic and is regularly consulted by readers looking for a single-page introduction to the argument.

In March 2018 Bloomberg covered a public spat that had broken out between David Swensen, then chief investment officer of Yale's roughly twenty-seven-billion-dollar endowment, and the student newspaper over the paper's coverage of the Investments Office. The piece noted that Swensen had rarely engaged on the record with student reporters and that the public exchange had been unusual for an office that had historically preferred to communicate through its annual report. The Bloomberg coverage framed the spat as a question about the appropriate venue for the office's public communication, and as a test of the relationship between a major institutional investor and the student press that covered it on a daily basis. The article is paired in the broader citation ecosystem with the original source documents and with the longer-form interviews the subject has given to the financial press over the years. The piece walked through the substance of the disagreement, which centred on the office's posture toward calls for divestment and on the question of whether the office had been sufficiently transparent about its ethical-investing framework. Swensen had pushed back on the paper's coverage in writing, the paper had published his response, and the exchange had become a reference point in the broader debate over how universities should respond to calls for divestment from the portfolio. The Bloomberg coverage noted that the office had published its ethical-investing guidelines and that the public exchange had been, in effect, a test of whether those guidelines were sufficient to satisfy the demands of the student body for transparency and engagement from the office. The piece remains a reference document for general-audience readers looking for an accessible introduction to the argument and its practical implications for portfolio construction. The piece closed with the broader context, noting that the exchange had been one of the most public moments in Swensen's tenure and that it had come at a time when the divestment debate was particularly active at Yale. The Bloomberg coverage is paired in the office's public bibliography with the Yale Daily News articles on the divestment debate and with the 2020 post in which Swensen again addressed the question in writing. The piece is one of the few mainstream financial-press items to cover the office in detail, and it is widely cited in the literature on university endowment governance and on the ethics of institutional investment as a case study in the relationship between an investor and its student press and the broader community. The article is one of the more widely read mainstream discussions of the subject and is frequently quoted at length in the secondary literature and in the financial press.

Zuckerberg appeared on April 10, 2018 before a joint hearing of the Senate Judiciary and Commerce committees, questioned for more than four hours about Facebook's treatment of user data. The pressure had been building since March, when media reports revealed that a researcher had sold Facebook user information to Cambridge Analytica, a firm associated with Donald Trump's presidential campaign. Zuckerberg conceded that the scrutiny had clearly hurt the company's mission, and he had already published an apology tour of posts acknowledging mistakes. The hearing itself revisited ground the company had been forced to cede since the 2016 election, when critics blamed Facebook for the spread of misinformation and Russian operatives used fake accounts to distribute divisive content, and it established the template for the big-tech chief executive summonses that would follow over the next several years. He told the senators that changes made to reduce deceptive content had already cut time spent on the site by fifty million hours a day.

January 2019 Dear Fellow Investor, This is the first annual letter to owners of the Fundsmith Sustainable Equity Fund (‘Fund’). The table below shows performance figures for the last calendar year and the cumulative and annualised performance since inception on 1st November 2017 compared with various benchmarks. % Total Return 1st Jan to Inception to 31st Dec 2018 31st Dec 2018 Cumulative Annualised Fundsmith Sustainable Equity Fund1 +4.5 +5.3 +4.5 Equities2 -3.0 -1.4 -1.2 UK Bonds3 +1.2 +2.2 +1.9 Cash4 +0.7 +0.8 +0.7 1 I Class Acc shares, net of fees, priced at noon UK time. 4 3 Month £ LIBOR Interest Rate. 2 MSCI World Index, £ net, priced at US market close. Source: Bloomberg. 3 Bloomberg/Barclays Bond Indices UK Gov. 5–10 yr. The table shows the performance of the I Class Accumulation shares, the most commonly held Class, which rose by +4.5% in 2018 and compares with a fall of -3.0% for the MSCI World Index in sterling with dividends reinvested. The Fund therefore beat this benchmark in 2018, and our Fund is the third best performer since its inception out of 133 onshore and offshore ethical funds available in the UK listed in the Ethical Sector by Financial Express Analytics.

Beacon, launched in late 2007 as an advertising system, tracked what Facebook users did and bought on partner websites and published that activity to their friends' feeds, often without consent, and even for people who were not Facebook members. Confusion over whether the system was opt-in or opt-out compounded the anger, and on December 6, 2007, Zuckerberg apologized and announced users would be given a choice to opt out; the system was eventually shut off entirely. The consequences outlasted the product: Facebook was already in talks with the Federal Trade Commission over privacy, and in November 2011 it settled FTC charges that it had deceived consumers, agreeing to submit to independent privacy audits every two years for the following twenty years. Beacon thus became the first stumble into the consent decree regime that would later frame the five-billion-dollar Cambridge Analytica penalty.

The Philadelphia response became a case study in crisis communication. The company's initial statement acknowledged the situation and promised a policy review, but it failed to mention concerns about racial bias, falling short on specificity and sincerity even though it was swift. The second statement, from chief executive Kevin Johnson, took a targeted tone describing the outcome as reprehensible and reaffirming the company's opposition to discrimination and racial profiling, and Johnson released a video taking personal ownership of the incident. MIT Sloan lecturer Roberta Pittore's framework held that in a social-media environment a response must be swift, specific, and sincere, and the revised statement indicated leadership had grasped the incident's gravity only after the first attempt fell flat. The gap between the two statements is the lesson: a general assurance of good intentions reads as insincerity when the incident at issue is specific, tangible, and visible to everyone watching.

CEO Tim Sloan opened the Q4 2018 review against the backdrop of the February 2018 Federal Reserve enforcement action that had capped the Company's total assets at approximately $1.95 trillion until governance and risk management controls were certified as effective. Management told the call that the operating earnings power of the franchise had continued to grow despite the asset cap, that the Federal Reserve had conditionally approved the 2018 capital plan and that the Company had repurchased approximately $4.1 billion of common stock during the fourth quarter under the 2018 CCAR cycle. CFO John Shrewsberry walked analysts through the operating leverage achieved under the asset cap, indicating that net interest income had grown despite the constraint by repositioning the asset side of the balance sheet toward higher-yielding loans and away from lower-yielding securities. He flagged that the expense trajectory had been elevated by the regulatory remediation costs but that the underlying operating expense run-rate would compress once the remediation programs wound down. On the Q&A, analysts pressed on whether the Federal Reserve asset cap would be lifted in 2019. Sloan responded that the Company was executing against the consent order requirements, that an independent third-party review was under way and that the timeline for lifting the cap was ultimately at the discretion of the Federal Reserve. He also defended the operating framework, arguing that the asset cap had actually driven better capital allocation discipline by forcing the Company to grow only the highest-returning asset categories and to contract the lower-returning ones. The call closed with management framing 2019 as a transition year of expense discipline, regulatory remediation and selective asset growth, and reiterating the long-term objective of mid-teens return on tangible common equity and a return of essentially all of the operating earnings power to shareholders through the cycle.

Huang interned at Google and Microsoft, became a Google engineer in 2004, returned to China in 2006 with Kai-Fu Lee to expand Google's China services, then resigned from Google in 2007 to start e-commerce site Oku, which he sold for $2.2 million in 2010.

In September 2018, ten years after the world's financial system nearly ground to a halt, Dalio released a book about the event and gave it away free. His explanation ran to his core belief that everything happens over and over again, and that by looking at things that happened many times one can see the patterns and understand the cause-effect relationships well enough to develop principles for dealing with them. He and his Bridgewater colleagues had studied those relationships in debt crises before 2008, and because they understood them they were able to navigate the crisis well when many others struggled. The book, A Template for Understanding Big Debt Crises, shared that understanding publicly because, at his stage of life, what mattered most to him was passing along the principles that had helped him. The free release itself carried the argument: knowledge about systemic risk should circulate. His stated hope was that sharing the template would make future big debt crises less likely and better handled when they arrive.

Seth Klarman's 1991 book Margin of Safety became one of the most elusive texts in modern finance after he refused to reprint it, pushing second-hand copies above a thousand dollars on collector markets. CNBC reported in July 2018 that a digital version had finally been released for free, ending nearly three decades of deliberate scarcity that had only heightened the book's cult status among value investors. Klarman had previously argued that the book was already dated, with its specific case studies no longer applying to the markets of the 2000s and with several of its named securities long since restructured or absorbed. Yet the release also confirmed his view that the underlying principles had become more urgent, not less, at a moment when zero interest rates and algorithmic euphoria were pushing investors toward speculative excess and toward an asset-allocation posture that the book itself had been designed to caution against. The book's central proposition is that the price of an asset and its underlying value are usually disconnected, and that the gap between them is the only thing that genuinely matters for long-term returns. Klarman argued that the discipline of buying at a meaningful discount to intrinsic value is what separates investment from speculation, even though the line is constantly blurred during bull markets when almost any purchase appears to work. He repeatedly stressed that most professional investors drift toward speculation under performance pressure, abandoning the patience that value discipline demands in order to keep up with benchmarks that themselves reflect speculative enthusiasm. He saw this drift as the central failure mode of the fund industry, where quarterly comparisons make it career-threatening to hold cash and even harder to refuse participation in fashionable trades that everyone else appears to be winning from at the moment. The free digital release also arrived as Klarman himself was warning clients that markets had grown complacent about liquidity, credit, and political risk in the aftermath of a decade of monetary support from the Federal Reserve. CNBC framed the release as both a gift and a warning, since the book's own cautionary tone had largely been vindicated by the prior decade's distortions and by the post-crisis calm that masked accumulating leverage throughout the system. Forcing the principles back into circulation, on Klarman's terms, was a quiet way of saying that the asset-management industry had drifted even further from a posture he considered safe. The book's enduring relevance was not nostalgia; it was that the conditions it described had only intensified after the financial crisis, and that the discipline of demanding a margin of safety had become more, not less, necessary for survival.

Zhang Jian placed first in the highest imperial civil-service examination in 1894, then abandoned officialdom in 1895 to found the Dasheng Cotton Mill in his home region of Nantong, choosing industry over a conventional mandarin career.

Pinduoduo became the largest agriculture platform in China and, per Wikipedia, one of the country's dominant e-commerce companies; Huang's exact current relationship to the company (which later restructured under PDD Holdings) was not confirmed by a primary source in this pass.

The commercial question underneath the hearing was whether users would leave. Asked by Senator Ron Johnson of Wisconsin whether the company had documented any backlash, Zuckerberg answered that there had been no dramatic falloff in the number of people using Facebook. He acknowledged the movement in which people encouraged their friends to delete their accounts, an effort he conceded had circulated widely, but said that people were concerned about the issues and wanted Facebook to address them, which they had communicated clearly. Johnson pressed him toward the conclusion that users cared less than Congress did; Zuckerberg declined to accept it. The exchange captured the durable discovery of the scandal cycle: outrage at the platform and use of the platform proved to be different variables, and the network's hold on its users survived the worst week of scrutiny in the company's history.

Johnson then traveled to Pennsylvania to meet the two men who had been arrested and apologize face to face, a move Pittore judged appropriate to the climate around the incident. In May 2018 the company reached a financial settlement with the pair for an undisclosed amount, along with a promise to help them complete their bachelor's degrees through the company's tuition assistance program, a resolution that asked the men what recompense would actually look like rather than imposing one. The centerpiece remained the decision to close more than eight thousand stores for an afternoon of racial-bias education reaching 175,000 employees, which Pittore called the right call while cautioning that a single afternoon could not eradicate unconscious bias. Her measured endorsement captured the strategic logic that acting beats waiting, that doing more beats doing less, and that moving sooner beats moving later, a sequencing standard against which corporate crisis responses are still measured.

The template is organized in three parts. The first lays out the framework for reading debt cycles and supplies principles for handling them well. The second examines three big debt crises in depth, the 2008 financial crisis, the United States Great Depression of the 1930s, and Germany's inflationary depression of the 1920s, so the reader can experience them in the context of the framework; that section also shares the notes Dalio and others at Bridgewater wrote during the 2008 crisis, so the episode unfolds through their eyes. The third part shows all the major debt crises of the last hundred years, forty-eight of them, in brief form, demonstrating how the template applied across the whole sample. The organizational bet is characteristic of Dalio's method: one crisis is an anecdote, forty-eight are a data set, and only a data set earns the status of a principle. The free PDF turned the firm's internal research archive into a public playbook for policymakers and investors preparing for the next one.

However, I realise that many or indeed most of our investors do not use the MSCI World Index as the natural benchmark for their investments. Those of you who are based in the UK may look to the FTSE 100 Index (‘FTSE’ or ‘FTSE 100’) as the yardstick for measuring your investments and may hold funds which are benchmarked to this index and often hug it. The FTSE delivered a total return of -8.7% in 2018 so our Fund outperformed this by a margin of 13.2 percentage points. It would not be surprising if some of you are worried about the returns in 2018, however I would suggest that the background needs to be taken into account and not just how the market indices performed but also other active funds. There are 2,592 mutual funds in the Investment Association (‘IA’) universe in the UK. In 2018, 2,377 or 92% of these produced a negative return. 13 posted a return of exactly 0%. Just 202 had a positive return. Our Fund was in the 2nd percentile — only 1% of funds performed better. 2018 was a year in which we saw considerable anxiety from some market participants due to:  The threat of a trade war between the USA and China  Brexit  The rise in US interest rates  The US mid-term elections  The Italian budget squabble (Italy is the third largest government bond market in the world)  The US government shutdown The response to this was a series of market jitters. The MSCI World Index (£ net) fell by 5.4% in October and after a rally this was followed by a fall of 7.4% in December.

For nine years at Zoho (formerly AdventNet), ending as VP of Product Management for the ManageEngine division, he had been building on-premise helpdesk systems since 2004 — giving him both domain expertise in customer-support software and a ringside seat to the cloud transition inside one of India's earliest product companies.

For the prior nine years Sachin had served as Flipkart's chief executive, eventually moving into the executive chairman role. At the internal meeting announcing the deal, Flipkart's leadership told employees that Sachin would no longer be associated with the company — a sharper exit than Binny's continuing role, and a signal that the two founders had negotiated different post-deal terms.

Zhang framed his industrial and educational projects around building a modern domestic economy that could resist foreign commercial and political pressure on China, later founding schools, a museum, and a planetarium alongside his mills.

He recruited his long-time colleague Shan Krishnasamy as co-founder and the two tried working nights and weekends before concluding that the only serious path was full-time; both resigned in October 2010, forming an initial team of six — three developers, a UI/UX designer, a QA/customer-support engineer, and Girish himself as product manager.

Walmart's official statement named Binny among those who would continue to hold a stake in Flipkart but conspicuously omitted Sachin. Analysts read the omission as confirmation that Sachin had exercised a clean cash-out rather than rolling into the new cap table — a deliberate founder-exit choice rather than a forced one.

Despite the hysterical headlines this, in my opinion, falls well short of turmoil — a word frequently used to describe these events. October has been a notoriously bad month for stock markets in recent decades and an example of what might reasonably be described as market turmoil was so-called Black Monday 19th October 1987 when the Dow Jones Industrial Average Index (‘Dow Jones’ or ‘Dow’) fell 22.6% in a single day. That felt dramatic. I should know as I was in work that day on the trading floor of the investment bank BZW and when I went home I received a slew of sell orders from a large US client who rang me.had

Wang's repeated early failures (Duoduoyou, Youzitu, losing control of Xiaonei, the government shutdown of Fanfou) preceded his eventual success founding Meituan in 2010, reflecting a multi-attempt entrepreneurial path rather than a single breakthrough.

Beyond Dasheng, Zhang diversified into fisheries, salt production, an oil mill, and a flour mill, building an integrated regional industrial base centered on Nantong rather than a single-product company.

The deeper problem the arrests exposed was structural to the business model. At the core of the Starbucks brand is the idea that its shops serve as a third place for meet-ups, studying, and work, and with the arrests a single store manager's decision put that carefully built persona of a socially progressive, inclusive community hangout at risk of unraveling. Pittore's reading is blunt about what the company actually sells: not a cup of coffee but membership in the part of the community people occupy when they are neither at the office nor at home, which must feel safe and welcoming to function at all. She framed the Philadelphia incident as a societal problem of racial bias surfacing through one employee's actions in a highly visible way, and she argued the company should audit its policies, board composition, workforce demographics, and wage structures to decide where on the spectrum of social consciousness it genuinely intends to operate.

The mechanics Dalio distills run as follows. All big debt cycles go through six stages, which the template describes and teaches the reader to navigate. Getting the balance right between too much debt, which causes debt crises, and too little, which causes suboptimal development, is never done perfectly; cycles swing from one extreme to the other, exacerbated because people remember what happened to them recently rather than what happened long ago, and the result is a big debt crisis roughly every fifteen years. There are two major types, deflationary and inflationary, with the inflationary ones typically occurring in countries with significant debt dominated by foreign currency. Four levers manage a debt crisis into a deleveraging: austerity, debt defaults and restructuring, wealth redistribution, and printing money to stimulate the economy. Managing well means spreading out the pain of the bad debts, which can almost always be done when debts are in one's own currency; the biggest risks come from policymakers lacking the knowledge or the authority to act. The beautiful deleveraging balances the levers so deflationary and inflationary forces offset.

The Bansal duo's relationship dated to 2005 at IIT Delhi and a subsequent brief stint at Amazon together before they took to entrepreneurship. That shared context — engineering classmates and ex-colleagues at the same employer — gave the partnership unusual operating trust, an asset they later spent on capital-allocation debates inside Flipkart's boardroom.

Resigned from a path toward further imperial office after placing first in the 1894 top-level civil service examination, and instead built the Dasheng Cotton Mill in Nantong starting in 1895.

Meituan grew into a dominant Chinese local-services and food-delivery platform, with Wang continuing as CEO as of the source's most recent update.

not been restored from the hurricane, which struck on the previous Friday, adding to the dramatic effect. I can only imagine with some amusement how some of the commentators, ‘investors’ and market participants who are reeling from the events of this October and December would have performed in October 1987. A December 2018 Financial Times headline referred to ‘Wild market swings’ and whilst the author might like to blame the headline writers for hyperbole — they are trying to sell papers/pixels after all — the article described a recent one day fall in the Dow of 3.1% as ‘eye-popping’. The fall of seven times that scale in 1987 would surely have led to them to exhaust the lexicon of hyperbole. Who knows what might have popped then? Tumultuous, turmoiled or turbulent Black Monday may have been, but did it really matter? Take a look at the chart below of the Dow Jones and see if you can spot Black Monday. You will need good eyesight or reading glasses to do so. In the long term, it did not matter. However, this does not stop advisers and commentators predicting crashes and bear markets and suggesting you take preventative action which ranges from reducing your equity holdings, buying or ‘rotating’ into lowly rated so-called ‘value’ stocks, through to selling everything and holding cash to safeguard the value of your assets or buying Bitcoin (down 80% in 2018).

Because India lacked a recurring-payment gateway, the team was forced to incorporate in the United States to access Braintree and other processors, while also registering an Indian entity for employees and office — an early example of the dual-jurisdiction structure many Indian SaaS firms would later copy.

My guiding principles for dealing with such events and predictions are as follows: 1. No one can predict market downturns with any useful level of reliability. Forecasts of what may happen in the market are about as reliable as Michael Fish’s infamous denial that there would be a hurricane in the BBC weather forecast on 15th October 1987. 2. However, when one of the repeated warnings proves to be accurate the forecasters will ignore the fact that if you had followed their advice you would have forgone gains which far outweigh your losses in the downturn. I can now trace back six years of market commentary that has warned that shares of the sort we invest in and our strategy would underperform. During that time the Fundsmith Equity Fund has risen in value by over 185%. The fact that you would have forgone this gain if you had followed their advice will, of course, be forgotten by them if, or when, their predictions pay off for a period. I suggest you don’t forget it. 3. Bull markets do not die of old age so ignore warnings which are based on a phrase such as ‘This bull market has gone on for a long time.’ They usually die from some event, often but not always rising interest rates. 4. Bull markets climb a wall of worry. The troubling events you can readily see unfolding are rarely the cause of a bear market. Alan Greenspan had already described the market as irrationally exuberant in 1996, so we were in a worryingly well- developed bull market.

The launch playbook was scrappy: a 99Designs-style logo, a $450 website from a small Indian studio, and small Google AdWords/Facebook/LinkedIn budgets of $10–$50 to validate demand — around $350–400 of total spend returned more than 150 valid beta signups.

What began from a two-bedroom apartment as an online bookshop had, by deal day, become India's largest homegrown e-commerce firm, valued at around 20 billion dollars and employing some thirty thousand people. The arc — apartment to global-record acquisition — became a template narrative for Indian venture-backed founders seeking strategic exits at scale.

Dasheng Cotton Mill grew into a diversified Nantong-based industrial and educational group (mills, fisheries, salt works, schools, a museum) and is described by China Daily and Berkshire Publishing as a foundational episode in China's early industrialization.

This was followed by the Asian crisis of 1997, Russian default and Long Term Capital Management collapse in 1998 which all looked scary, but ironically they made the Federal Reserve hesitate to raise rates which gave the bull market a new leg which lasted until 2000. Maybe the possible trade war with China and market jitters will have a similar effect. 5. Bull markets do not broaden as they age — they narrow. The current bull market started in 2009 when shares rose indiscriminately. Then amongst developed markets, the US took the lead. Then the technology sector in the US. Then just the ‘FAANGs’ (Facebook, Amazon, Apple, Netflix and Google). The idea that in the late stages of a bull market investors can make gains by switching into the stocks which have lagged the market flies in the face of experience.

In 2016 the Bansals became the first Indian e-commerce founders to appear on Time magazine's list of the 100 most influential people globally, and Forbes had pegged Sachin's personal net worth at 1.3 billion dollars in 2015. These external recognitions preceded the Walmart deal by three years, indicating the brand premium the founders carried into the eventual transaction.

Customer conversations taught the team that prospects wanted core problems solved rather than flashy social integrations like tweet-to-ticket; they also wanted one unified invoice across helpdesk, CRM, surveys and feedback forums — a re-prioritisation toward functionality consolidation over hype features.

At the time of writing, the firm had taken no outside funding, was burning around $5,000 a month for the six-member team, and was operating with team members accepting 30–50% of market salaries in exchange for stock options — the founder himself taking no salary at all.

6. As for buying so-called value stocks, if you wish to pursue this strategy it is best done after the bear market has struck, not before. If you approached any of the famous value investors and suggested they buy some of the assorted value stocks in the FTSE 100 Index as a value play, I think they would just laugh at you. A ‘value’ stock like Imperial Brands (formerly Imperial Tobacco) was on an historic P/E of 8.1x at the end of 2000 in a bear market. It is now on an historic P/E of 16.5x. An aim for a value investor might be to buy ‘value’ stocks in a downturn when their yield is higher than the P/E. 7. A bear market will occur at some point. We may indeed already be in one. The best stance is to ignore it since you can’t predict it or position yourself effectively to avoid it without impoverishing yourself by forgoing gains. But you have to possess the emotional and financial stability to stick to this stance when it strikes. Returning to the events of 2018, the MSCI World Index (£ net) fell by -3.0%. So it was a poor performance but it still seems well short of justifying hysteria or a wholesale change of investment strategy. I say this notwithstanding the fact that on the bad days in the stock market there were clear signs of the sort of ‘rotation’ into ‘value’ stocks, which I touch upon in point 6 above. I often use the term ‘value’ in inverted commas for a number of reasons:  What some people mean by value is lowly rated.

Both Bansals had already recycled capital into the next generation of Indian startups — smart-scooter maker Ather Energy, warehouse-robotics firm GreyOrange, and Team Indus, which had been building a lunar spacecraft for a Google XPrize. The angel portfolio signalled that their post-Flipkart playbook would be mentor-plus-capital rather than a clean retirement.

Mathrubootham treats traction as the single most important metric for any investor pitch, having deliberately kept the AngelList profile invisible until launch — an explicit statement that, in his view, product validation must precede fundraising, especially for a category where the only moat initially is execution speed.

A stock may be lowly rated but not good value if the (lack of) quality of its business and/or its prospects mean that its intrinsic or fundamental value is still below its lowly valuation.  The distinction which many commentators make between growth or quality investing and value investing is in my view a somewhat superficial one. To quote Warren Buffett: ‘Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth”. Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago).variable

He credits the Hacker News search bar as an entrepreneur's best resource, having read every comment ever written about every competitor on the platform — an unusually disciplined market-research posture that gave him a textured read on Zendesk's weaknesses and the broader cloud transition before he wrote a line of code.

whose importance can range from negligible to enormous and whose impact can be negative as well as positive.’ Most investment strategies require some regard for the valuation of the stocks purchased or held — even strategies like ours which focus on high quality companies. The rate of growth of a company is a critical component of its valuation.  As pointed out in point 6 above, most stocks are not currently at valuations which would attract classic value investors. True value investing involves buying stocks when they are trading significantly below your estimate of their intrinsic or fundamental value and then waiting for some event(s) to lift the share price up to or above the intrinsic value — usually a management change, takeover, demerger, a change in the economic or market cycle, or simply when they come back into fashion amongst investors. When this occurs the value investor seeks to realise his or her gains and move on to find another value stock on which to repeat this performance. Value investing has been out of fashion in recent years as persistently low interest rates have driven the value of almost all stocks beyond the reach of true value investors. Nonetheless value investing has its merits and will surely have its day when stocks of the sort which attract value investors perform well. However, it is not a strategy which we will be pursuing even if we could foresee it coming back into fashion, which it will at some point.

The sort of stocks which trade on low enough valuations to attract value investors are unlikely to be those which we seek – businesses which can somewhat predictably produce a high return on capital employed, in cash, and can invest at least part of that cash back into the business to fund their growth and so compound in value. Unlike our strategy which is to seek such stocks and hold onto them, letting the returns which the company generates from this reinvestment produce good share price performance, value investing suffers from two handicaps. One is that whilst the value investor waits for the event(s) which will crystallise a rise in the share price to the intrinsic value that has been identified, the company is unlikely to be compounding in value in the same way as the stocks we seek. In fact, it is quite likely to be destroying value. Moreover, it is a much more active strategy.this

is far from easy. Moreover, this activity has a transaction cost. Our strategy has the merit that inactivity is a benefit. If we have correctly identified the good companies whose stock can compound in value, we can hope to hold them indefinitely and still derive good investment performance from them with lower transaction costs. There are a couple of indices which tell you how value stocks perform. One is the MSCI Europe Value Index (GBP Net). In the 2007-09 financial crisis its maximum fall was 52%, which is 16 percentage points worse than the performance of the MSCI World Index (GBP Net) over that period. So much for the theory that value stocks protect you in a downturn. As you hopefully know by now, we have a simple four step investment strategy: • Buy good companies • ESG screen • Don’t overpay • Do nothing I will review how we are doing against each of these in turn. As usual we seek to give some insight into the first of those — whether we own good companies — by giving you the following table which shows what Fundsmith would be like if instead of being a fund it was a company and accounted for the stakes which it owns in the portfolio on a ‘look through’ basis, and compares this with the market, in this case the FTSE 100 Index and the S&P 500 Index (‘S&P 500’). We not only show you how the portfolio compares with the major indices but also how it has evolved over time.

Year End FSEF S&P 500 FTSE 100 2017 2018 2018 2018 ROCE 28% 30% 16% 17% Gross margin 66% 64% 45% 39% Operating margin 26% 26% 15% 16% Cash conversion 104% 97% 84% 96% Leverage 29% 44% 46% 39% Interest cover 19x 18x 7x 9x Source: Fundsmith LLP/Bloomberg. ROCE, Gross Margin, Operating Profit Margin and Cash Conversion are the weighted mean of the underlying companies invested in by the Fundsmith Equity Fund and mean for the FTSE 100 and S&P 500 Indices. The FTSE 100 and S&P 500 numbers exclude financial stocks. The Leverage and Interest Cover numbers are both median. All ratios are based on last reported fiscal year accounts as at 31st December and as defined by Bloomberg. Cash Conversion compares Free Cash Flow per Share with Net Income per Share.

As you can see, not much has changed. I would suggest ignoring the increase in Leverage — the amount of debt the portfolio companies have as a proportion of their capital. The arithmetic average of our portfolio companies would not be very meaningful as it would average a wide range between eight of our stocks which have net cash and two which have leverage of over 1,000% (as they have reduced their capital through share buybacks). Even the median which we use is not much better — the median is the 13th stock in order of leverage but those either side have leverage of 27% and 49% respectively. For those of you who glaze over at statistical explanations — the figure tells you virtually nothing about the actual financial characteristics of the businesses. You might therefore wonder why we include it, and latterly so do I, but I don’t like taking figures out of tables we have provided in the past as it can cause suspicion about the reasons why (figures are rarely omitted when everything appears to be going well). The interest cover — which remains stable at about 18x and twice the level of the index companies — is a much better guide to the financial stability of our portfolio companies. What is more interesting is that the companies in our portfolio continue to have significantly higher returns on capital and better profit margins than the average for the indices.

They convert more of their profits into cash and achieve this with at least no more leverage than the average company. The average year of foundation of our portfolio companies at the year end was 1928. Consistently high returns on capital are one sign we look for when seeking companies to invest in. Another is a source of growth — high returns are not much use if the business is not able to grow and deploy more capital at these high rates. So how did our companies fare in that respect in 2018? The weighted average free cash flow (the cash the companies generate after paying for everything except the dividend, and our preferred measure) grew by 10% in 2018. We regard this as a very good result given the generally subdued and patchy growth which the world continues to experience and the fact that the previous year the portfolio companies achieved growth of a remarkable 15%, so the starting base for comparison in 2018 was a tough one.electric

utilities, metals and mining, oil, gas and consumable fuels, pornography and tobacco) and screening for sustainability in the widest sense, taking account not only the companies handling of ESG policies and practices but also their policies and practices on research and development, new product innovation, dividend payments and the adequacy of capital investment. Both these types of screening benefitted the fund in 2018. Whilst we have never identified an investable company in the majority of the excluded sectors there may be relatively good companies to be found in the brewers, distillers and vintners and tobacco sectors. However the Fund benefitted from not holding any of these companies in 2018 as they underperformed the MSCI World Index (£ net) by 11% in aggregate. Facebook, which also meets our criteria for a good company from a financial standpoint was excluded from the outset because our proxy for negative impact — the RepRisk indicator — was significantly higher than other companies (63 vs. portfolio average 20). Facebook had also done very little to reduce its negative impact score. Hardly that surprising for a company whose motto until 2014 was ‘Move Fast and Break Things’. The decision to exclude Facebook was made before the Cambridge Analytica scandal broke in March, where Facebook was accused of allowing external firms to harvest personal data from users through its site.

This was done using an app called “This is Your Digital Life”, which not only collected data of the person who agreed to take the survey, but also the personal information of all the people in those users’ Facebook social network. Since the scandal broke, Facebook has had to reassure users how it uses and profits off their personal data, while also increasing its transparency and the range of tools it offers to control the use of your data. Facebook still has more to do to meet our sustainability criteria. During 2018, the weighted average RepRisk indicator for the portfolio fell from 23.7 to 20.1, which means that the portfolio now has less reputational risk from ESG factors than it started the year with.44

The list looks very similar to that of 2017 with the highest scorer from last year, Nestlé, being replaced this year in the list by Marriott. Nestlé was sold from the FSEF portfolio during 2018, while Marriott’s RepRisk indicator increased by 28 in December after the data leak from its Starwood brand. Johnson & Johnson’s RepRisk indicator has increased from 53 to 65 as its medical subsidiary, Ethicon, has been widely criticised for the risks involved in transvaginal mesh implants, which caused chronic and excruciating pain for thousands of woman and has also been subject to extensive litigation and punitive damages awarded to patients who developed mesothelioma, a deadly form of cancer caused by exposure to asbestos-contaminated talcum powder between 1972 and 2003. At the end of 2018 the four companies with the lowest RepRisk scores were: IDEXX 0 Intertek 0 Sage 0 Waters 0 This list also looks very similar to end 2017, with the only change being CR Bard, which was taken over by Becton Dickinson, being replaced by Sage. A noticeable trend over 2018 has been the increasing number of companies commenting on their efforts to improve the recyclability of packaging and in particular plastics — especially since Sir David Attenborough highlighted the impact plastic waste can have on the oceans at the end of the television series Blue Planet II.

Out of the food and personal care companies owned in the Fundsmith Sustainable Equity Fund in 2018, PepsiCo, Nestlé, Colgate and Unilever have committed to 100% of their packaging being some combination of recyclable, compostable, biodegradable or reusable by 2025. This commitment could have a large impact on plastic waste as for example, only 25% of Colgate and Unilever’s plastic packaging is currently recyclable, while Unilever alone produces the equivalent weight of the entire global population in plastic. PepsiCo committed to 50% of the plastic it uses coming from recycled plastic (vs. 13% currently), while Colgate wants to use 25%. However, in order to reduce the amount of waste in the environment, there needs to be an increase in recycling capabilities around the world, as just because packaging can be recycled, doesn’t mean it necessarily is.recycling

infrastructures and capabilities. Unilever recently collected 450 tonnes of single-use plastic sachets in Indonesia, which would have otherwise ended up in the ocean. The sachets will be re-used in other Unilever products. To avoid the dependency on the need for better recycling infrastructure, Unilever announced that they signed an agreement with Bio-On, an Italian biodegradable plastic specialist, to develop new packaging. A further concern for the FMCG companies in the portfolio is how they source palm oil, which was brought to national attention in Iceland’s (the supermarket not the country) recently “banned” viral Christmas advert that highlighted the environmental impact of the palm oil industry. The advert was used as part of a campaign highlighting how it has removed palm oil from all of its private label products. For a bit of context, palm oil is the most widely used vegetable oil in the world because it’s one of the few fats that is semi solid at room temperature, has excellent cooking properties (smooth and creamy texture, lack of scent, natural preservative properties) and can be grown very efficiently, which means it can be produced cheaply. The average western consumer eats almost 2kg of palm oil a year and it is used in everything from personal products and cosmetics to pastries and baked goods. Currently 85% of palm oil production is in Malaysia and Indonesia where the industry employs 4.5m people and for many is their only way out of poverty.

However, the industry often results in what was once virgin rainforest being converted into biologically uniform palm oil plantations. The complexity of the issues surrounding the industry was shown when 2,000 palm oil plantation workers gathered in Malaysia’s capital, Kuala Lumpur, to protest against the EU’s plan to remove palm oil from its list of designated renewable fuels because of the impact it has on deforestation and the draining of wetlands. The farmers in Malaysia argued this wasn’t the case and that the only motive was to put Malaysian small holders back into poverty. The problem for FMCG companies is that substituting palm oil in their products will have a larger negative impact on the environment than continuing to use it. This is because palm oil yields around 5 tonnes of oil per hectare per year, which is almost 5x as much as rapeseed oil, the next best alternative with similar characteristics. Palm oil production also requires less fertilizer and fewer pesticides.at

least 5x more land — therefore contributing to more deforestation — but also, those products would need to be reformulated, which could have a major impact on sales and profits. Therefore, in the Fundsmith Sustainable Equity Fund we look for companies that are aware of the negative impacts of using palm oil and are looking to source more of it in sustainable ways. In 2018, Nestlé and Unilever were the most vocal about their efforts to improve the sustainability of their palm oil supply chains. Nestlé was reinstated by the Roundtable on Sustainable Palm Oil after it submitted a plan to only use sustainable palm oil by 2023. While Unilever also committed to using 100% sustainable palm oil, compared to 50% in 2017, but will do so by the end of 2019. We continue to monitor as many statistics as the portfolio companies produce in a consistent way to assess the overall sustainability of the portfolio, which are shown in the tables below and report every month in our sustainability factsheet. The sustainability of the companies in the FSEF portfolio on these measures continues to be markedly better than the main index for which we can get comparable data — the S&P 500 Index — on every count with the sole exception of the percentage of independent directors, which was 82% versus 89% for the Index largely because some of the investee companies have board members representing controlling founder family shareholders. The third step in our strategy is to not overpay.

The weighted average free cash flow (‘FCF’) yield (the free cash flow generated by the companies divided by their market value) of the portfolio at the outset of the year was 3.8% and ended it at 3.9%, so they became cheaper or more lowly rated. Whilst this is not a good thing from the viewpoint of the performance of their shares or the Fund, it is inevitable that sooner or later the cash flows generated by our companies will grow faster than their share prices, rather than vice versa. This is far from an unhealthy development especially if we are investing more in the Fund through the Accumulation shares. The year-end median FCF yield on the S&P 500 was 4.7%. The year-end median FCF yield on the FTSE 100 was 5.2%. More of our stocks are in the former index than the latter and I will not repeat the explanation which I gave last year on why I think the FTSE 100 is not an appropriate benchmark or investment proxy for investors to use. Our portfolio consists of companies that are fundamentally a lot better than those in either index and are valued more highly than the average FTSE 100 company and a bit higher than the average S&P 500 company but with a significantly higher quality.

For the year the top five contributors to the Fund’s performance were: IDEXX +1.4% Intuit +1.3% Microsoft +1.2% Visa +1.0% Coloplast +0.9% The bottom five were: Sage -1.0% Marriott -0.8% Colgate Palmolive -0.7% Reckitt Benckiser -0.7% Nestlé -0.5% Sage, the accounting software provider, was the subject of an unplanned change of CEO during the year, of which more later. Turning to the third leg of our strategy, which we succinctly describe as ‘Do nothing’, minimising portfolio turnover remains one of our objectives and this was again achieved with a portfolio turnover of - 12.2% during the period. Negative turnover occurs because the method of calculating turnover excludes flows into or out of the Fund, otherwise a newly established fund would automatically have 100% or more turnover. However, it is not very helpful in judging our activities. It is perhaps more helpful to know that we spent a total of just 0.031% (3.1 basis points or hundredths of a percent) of the Fund’s average value over the year on voluntary dealing (which excludes dealing costs associated with fund subscriptions and redemptions as these are involuntary). Why is this important? It helps to minimise costs and minimising the costs of investment is a vital contribution to achieving a satisfactory outcome as an investor.

Too often investors, commentators and advisers focus on or in some cases obsess about the Annual Management Charge (‘AMC’) or the Ongoing Charges Figure (‘OCF’), which includes some costs over and above the AMC, which are charged to the Fund. The OCF for 2018 for the I Class Accumulation shares was 1.05%. The trouble is that the OCF does not include an important element of costs — the costs of dealing. When a fund manager deals by buying or selling, the fund typically incurs the cost of commission paid to a broker, the bid-offer spread on the stocks dealt in and, in some cases, transaction taxes such as stamp duty in the UK. This can add significantly to the costs of a fund, yet it is not included in the OCF.

We provide our own version of this total cost including dealing costs, which we have termed the Total Cost of Investment (‘TCI’). For the T Class Accumulation shares in 2018 this amounted to a TCI of 1.16%, including all costs of dealing for flows into and out of the Fund, not just our voluntary dealing. We did undertake some activity in 2018. In particular we sold our holdings in Dr Pepper Snapple, InterContinental Hotels and Nestlé during the year. We purchased holdings in Estée Lauder, the US based cosmetics business and Coloplast, the Danish medical devices company which specialises in the production of catheters, wound and skin care and a new position in a consumer staples business whose name will be revealed when we have accumulated our desired weighting across funds. Dr Pepper Snapple was a stock we have held since inception. We found the strategic rationale for the acquisition by Keurig Green Mountain difficult to comprehend and so took our leave of the situation. Commentators seem to forget that a similar combination was tried between Coca-Cola and Keurig which was unsuccessful and quietly abandoned. Last year we wrote in the Fundsmith Equity Fund Annual Letter about the attention which Nestlé, amongst other portfolio companies, had attracted from activist investors.

In Nestlé’s case this was followed by the announcement of new margin and share buyback targets and then a deal to purchase Starbucks supermarket coffee products, excluding the ‘Ready to Drink’ ones, for $7.15bn. In other words, bags of coffee. Presumably we can also look forward to being able to purchase Starbucks Nespresso pods. Virtually no mention was made of the royalty which Nestlé will continue to pay to Starbucks on sales of these products. We rely on the management of our companies to allocate capital in ways which create value for us as investors, and this deal did not seem to meet those criteria, although it certainly seemed to fit the activist imperative to do something and looked like a good deal for Starbucks. This year I thought I would use the opportunity afforded by this letter to talk about our engagement with companies. We are often asked by investors whether we meet company management and how we engage with them. The answer is that we meet them a lot. We visit companies we wish to research and meet them physically or virtually at results meetings and industry conferences.all

resolutions and proxy statements at general meetings. We do not employ any outside agency for this. However, meeting management is not our primary test of whether a business is of sufficient quality for us to invest. We think good businesses are identifiable from the numbers they produce. Nor do we meet management to give them our views on how to run the business. If they don’t know how to do so we are in serious trouble. There were two examples in 2018 of the closer engagement which we undertake when necessary. One was with Sage, the accounting software company and the UK’s largest quoted IT company. Sage like many software providers is in the midst of a switch from provision of perpetual software licenses for its products — historically in the form of a disc — to the provision of Software as a Service (or ‘SaaS’ as it is known in the jargon) in which the product is provided online as a subscription service. This has many advantages — knowing who the customer is, the ability to provide upgrades and sell adjacent products (like payroll and HR services) and repeat revenues. But it is not an automatic win — legacy customers can be reluctant to switch and the move to SaaS can provide an opportunity for disruptive competitors. Sage has had a couple of disappointing quarters of results in 2018 when the revenue growth which was expected to be 8% p.a. looked like it might come in closer to 6% p.a.

Whilst this was not ideal it was not as worrying as the possibility that the product development might not be fit for purpose and/or that in trying to reach for short term targets essential product development might be neglected. We therefore engaged with the Chairman to ensure that our concerns were understood. In this respect we felt we could draw upon our experience as shareholders in Intuit which competes with Sage and has made a so far successful transition to becoming a SaaS company. We did not however call for any change in management. The board nonetheless subsequently took the decision to part company with the CEO. We engaged with the Chairman to try to ensure that a suitable choice was made, drawing on our experience as a shareholder in Microsoft during the transition from Steve Ballmer as CEO to Satya Nadella, which has gone very well, and finally we met with the new CEO when he was appointed permanently to discuss the way forward for the business.announced

£60m of additional expenditure, two thirds of which is on product development. The other main corporate engagement outside the run of the mill AGM proxies and remuneration consultations in 2018 concerned Unilever, which announced a plan to unify its Anglo Dutch dual share structure and centre the headquarters and listing in the Netherlands. This was to be subject to a shareholder vote in the UK PLC which never occurred, presumably because the board could see it was about to be defeated. Unlike some investors, the switch of listing would not have affected our ability to continue as shareholders. Our engagement with the Chairman centred around the motivation for the move which was portrayed as a desirable simplification that would make it easier for Unilever to engage in acquisitions involving share issues, particularly in the United States. We were rather sceptical about the stated reasons for the change. The previous year Unilever had a near death experience with a takeover approach from Kraft Heinz. Add to this the episode in which the US chemical company PPG Industries had bid for the Dutch paint maker Akzo Nobel and a subsequent freedom of information request had revealed collusive activity between Akzo Nobel’s management and Dutch politicians to thwart the bid and you did not need to be the fictional Dutch detective Van der Valk to figure out that there might be some other motivations for the proposed move.

As you will be able to tell if you read our annual letter last year, we are far from enthusiastic about most shareholder activism nor are we shareholders in or fans of the Kraft Heinz business model. But we thought that Unilever’s management had a case to answer and we think that the ability to mount a hostile takeover is an important discipline in ensuring that our assets are properly managed. When the Chairman told us that he was never in favour of such actions, though he concurred that some companies were poorly managed, we were at best a bit confused about what mechanism he thought might be applied if such a change became necessary. Harsh language maybe? We did not take part in any public commentary about our voting intentions had the Unilever changes come to a vote and please note that we have not revealed that here, we have merely commented on the process. In our view achieving good stewardship of a business is not always a process best conducted through the media.

I would like to end by addressing the question of what will happen next in equity markets, which may surprise you given that I always respond to questions about this by saying I haven’t got a clue, and neither has anyone else. Imagine a fund manager approached you with an offer for you to invest in a portfolio of high quality companies. You may quite like the strategy but you are worried about whether or not this is a good time to invest in the stock market. Take a look at the chart below which shows the world’s largest index by market capitalisation, the S&P 500, and which includes more quality companies than any other index. Source: Bloomberg The chart looks like a roller coaster that has just passed the peak of the ride. Surely you would be stupid if you invested now no matter how good the strategy is. Better to wait until the market has had a proper fall. You may notice that there are no dates on this chart of the S&P 500. That’s because I wanted you to assume I was referring to the current market and our own fund, Fundsmith. In fact, the chart above shows the 37 years up to 1965 — the year in which Warren Buffett took control of Berkshire Hathaway. If you had made the decision to time the market and hold back from investing then you would probably have missed out on the 20.9% compound growth in the market value per share of Berkshire since 1965 as a result.

‘Ah but that’s not how market timing works’, I can foresee someone saying. ‘Just because I didn’t buy into it in June 1965 doesn’t mean that I wouldn’t have bought into Berkshire later after the market had fallen.’ Seems fair except that the market didn’t fall in the remainder of 1965. In fact, the S&P 500 went up by a further 13% in the second half of 1965. What would you have done then? Panicked and bought Berkshire or held off? If you had the nerve to do the latter, you might have felt vindicated in 1966 when the S&P 500 fell by 22% at one point. There are several problems with this though. Berkshire Hathaway is not the S&P 500. Its shares rose 49.5% in 1965 and only fell by 3.4% in 1966. So, your hesitancy would not have paid off. Moreover, by 1967 the market had recovered to a new peak. Are you really smart enough to not only a) predict a market fall but also; b) figure out how this translates into individual stock movements; c) get your timing sufficiently correct that you do not either forgo gains which far outweigh any losses you protect against or suffer some of the downturn; d) have sufficient mental agility and nerve to start buying when your prediction of a market fall has become reality; and e) get the timing roughly right on that side of the trade so that you don’t end up catching the proverbial falling knife or missing some or all of the recovery? If so, I doubt you will be reading this letter on your private island. But above all, I doubt you exist.

To be fair, there have been plenty of big falls in both the market and Berkshire Hathaway’s stock in the intervening 50 odd years since 1965. Berkshire’s shares fell by over 50% in 1973–75 and 2008–09, and by nearly 50% in 1998–2000, plus a mere 37% in 1987. The point about this is not simply that getting the timing of markets right is impossible it is also that in even attempting to do so you might have missed out on investing in Warren Buffett’s Berkshire Hathaway, the results of which far outweigh any market timing gains. So where are we now?date:

Source: Bloomberg Looks familiar doesn’t it? And it makes people reluctant to invest. ‘Ah’ but I can hear someone say, ‘Things are different — the valuation was much lower in 1965 than it is now.’ In mid-1965 the S&P 500 was on a P/E of 18.6x. Now it is on a 2019 forecast P/E of 17.1x. There is no significant difference, although it is actually more lowly rated now. But surely only an idiot would invest in a portfolio of high quality company stocks when the market chart looks like that... As Mark Twain said, ‘History doesn’t repeat itself, but it often rhymes.’ Finally, I wish you a happy New Year and thank you for your continued support for our Fund. Yours sincerely, Terry Smith CEO Fundsmith LLP

Disclaimer: A Key Investor Information Document and an English language prospectus for the Fundsmith Sustainable Equity Fund are available via the Fundsmith Sustainable Equity Fund website or on request and investors should consult these documents before purchasing shares in the fund. Past performance is not necessarily a guide to future performance. The value of investments and the income from them may fall as well as rise and be affected by changes in exchange rates, and you may not get back the amount of your original investment. Fundsmith LLP does not offer investment advice or make any recommendations regarding the suitability of its product. This document is communicated by Fundsmith LLP which is authorised and regulated by the Financial Conduct Authority. Sources: Fundsmith LLP & Bloomberg unless otherwise stated. Portfolio turnover has been calculated in accordance with the methodology laid down by the FCA. This compares the total share purchases and sales less total creations and liquidations with the average net asset value of the fund. P/E ratios and Free Cash Flow Yields are based on trailing twelve month data and as at 31st December 2018 unless otherwise stated.