Terry Smith built his hedge fund Fundsmith with a simple three-step strategy: "Invest in good companies, don't overpay, and do nothing." It's the simplicity, patience, and long-term thinking that has earned Smith the moniker, "The English Warren Buffett."
But doing absolutely nothing is harder than it looks. Even Warren Buffett tweaks a few things in Berkshire Hathaway's equity portfolio most quarters. And while Smith prefers to hold on to his top investments forever, sometimes he has a good reason to sell. Most of the time, though, he's able to find another great business to buy at a fair price. Then comes the tough part of doing nothing.
The first quarter of 2025 pushed Smith to sell off portions of two of his largest holdings in the fund: Meta Platforms (META 2.09%) and Microsoft (MSFT 1.04%). With some of the capital raised from the sales, he reestablished a position in a stock that's been trouncing the market in 2025.
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Taking some profits
Smith is a big fan of letting his winners ride. In fact, he often makes light of the saying, "No one ever got poor by taking profits" in his letters to shareholders. "We continue to pursue a policy of trying to run our winners," he wrote in his 2021 letter.
While he's sold some of Fundsmith's stake in Microsoft since he published those words, it's remained a double-digit percentage worth of the fund's publicly traded portfolio. Last quarter, however, Smith sold over half a billion dollars worth of the stock, about 13% of the fund's shares. He took a similar approach with Meta, but sold off about 15% of the fund's shares last quarter.
Both Meta and Microsoft remain the fund's two largest holdings as of the end of the first quarter. But Smith's decision to take some shares off the table suggests he sees better opportunities for growth elsewhere.
Indeed, Meta reached a new all-time high in the first quarter. That was largely a result of multiple expansion. Its forward P/E climbed from around 24 to over 28 at one point during the quarter. While the stock dropped from February through April, it's once again climbing toward that high valuation.
Microsoft saw its value decline in the first quarter, however, as DeepSeek's innovative reasoning models made investors question the need for companies to spend so heavily on artificial intelligence (AI) chips and compute power. With Microsoft's cloud computing business, Azure, driving the profit growth for the company, the stock price wavered in the first quarter, and Smith took some risk off the table.
Unfortunately for Fundsmith investors, Microsoft stock is now setting new all-time highs, as all indications are there's no slowing down in AI spending.
Despite the strong runs in Meta and Microsoft, the stocks still look fairly attractive. Investors will pay a premium for both companies, but they're supported by strong free cash flow-generating businesses, management teams that return a lot of capital to shareholders, and lots of growth opportunities supported by AI.
Still, Smith saw an opportunity to take a small amount of capital and put it into a stock that's been trouncing the market in 2025. And it's not too late for retail investors to follow suit.
The newest (re)addition to Fundsmith's portfolio
One of the newest additions to the Fundsmith portfolio is a stock Smith held from 2017 through 2022. After a phenomenal run through 2021, it got hit hard in early 2022 at the onset of the bear market. But the stock finally recovered its 2021 highs this year, and Smith sees a lot to like in the business.
That's why he invested about $100 million in Intuit (INTU 1.83%) in early 2025. The investment has already performed well thanks to a strong earnings report last month. Shares were already outperforming the S&P 500 before the report, but they skyrocketed higher after blowing away earnings expectations.
TurboTax's most recent earnings results showed strong momentum in its assisted tax business with TurboTax Live. The service connects TurboTax users, the dominant personal tax software in the U.S., with live tax professionals to help answer questions and complete their tax returns. Management now expects TurboTax Live revenue will grow 47% this year, accelerating from its 17% growth last year.
Intuit's other consumer service, Credit Karma, is growing quickly as well. The segment grew 31% year over year during the quarter, and management updated its full-year guidance to 28% growth, up from 5% to 8% growth.
Intuit also offers key enterprise software, including QuickBooks and Mailchimp. Those services also offer Live help, which is seeing strong demand, driving higher revenue per user. The company is also working on AI agents that can create done-for-you experiences in admin tasks such as invoicing. So, not only is the segment generating strong revenue growth today, management is setting itself up to drive higher revenue per user well into the future.
While shares of Intuit have moved higher since that earnings report came out, there's still plenty of room for the stock to move higher from here. Shares trade for a premium valuation of about 33 times forward earnings, but the most recent earnings report shows confidence that it can grow into that valuation with strong revenue growth and expanding profit margins. As such, investors can still buy this great company at a fair price (and do nothing).
