Algy's Investment Podcast Terry Smith: How To Use Compound Interest to Grow Your Investments! | #1
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Oct 2, 2023 
Terry Smith discusses the power of compound interest and the value of reinvesting profits in businesses. He emphasizes the importance of return on capital employed, diversification with around 20 companies, and a patient, low turnover strategy. Smith also talks about analyzing original financial statements over adjusted numbers, maximizing returns, evaluating investments, and the importance of extensive learning before investing.
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Watch For Excessive Adjustments
- Count management adjustments; many adjustments usually hide poor performance.
- Prefer companies that present clear statutory numbers over heavily 'adjusted' results.
Use Free Cash Flow Yield Like A Bond Comparison
- Value companies using free cash flow yield and compare it to government bond yields.
- Add your free cash flow growth estimate to the yield to approximate expected returns.
Yield + Growth Approximates Return
- Rule-of-thumb: yield plus growth approximates total return, though it's imperfect.
- Rare cheap opportunities (e.g., Microsoft at extreme yields) can materially boost long-term returns.