Ask For Me Tomorrow

Terry Smith (founder of Fundsmith) explicitly doesn’t try guess the future. “The reality is that we don’t seek to predict who will win, but rather to bet on a company that has already won”. This may seem like it goes against the standard risk disclaimer… past performance is no guarantee of future results. I see the point more that winners keep on winning because they have breathing space. Success is path dependent. You need money to make money. Businesses (and people) with strong balance sheets (engines of capital) are able to have a longer-term time horizon. A fundamental rule of money is to never be a forced seller. If you have previously been successful, you can have a buffer of cash (1) for when future results are losses, and (2) that stops you being forced to sell bits of your engine when you know the price is awful. The reason winners keep winning isn’t necessarily because they are better, it is because they have the resources for when they aren’t. That allows them to focus on creating sustainable competitive advantages. One man’s mortal wound is another man’s scratch.