Warren Buffett was once quoted as saying: “Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with a manager of the highest integrity and ability. Then you own those shares forever.”
This simple approach is at the heart of Nick Train’s new Lindsell Train global equity fund. Younger readers may not be familiar with Train but he spent 17 years at GT – now part of Invesco – and was responsible for some superb performance with GT income fund in the 1980s and 1990s. After a spell at M&G, he set up Lindsell Train in 2000 with Michael Lindsell, his former colleague at GT.
Lindsell Train’s central philosophy is to run their clients’ money as they would run their own and to take the long-term view on investment performance – as well as the development of their business.
Train’s long held belief is investors persistently get overexcited by short-term performance and ignore the sustainability of returns over time.
Unilever is a great illustration of a stock regarded by most investors as dull and boring. Yet, in 1990, Unilever’s annual dividend was 9.5p, now it is 71.5p, an appreciation of 10.6 per cent a year. Naturally, this has propelled the share price too, up by more than fivefold over the period, and comfortably ahead of the market as a whole.
In this global fund, Nick Train focuses on finding shares in durable businesses such as Unilever, which can steadily increase their earnings over time while being conservatively financed. It is not possible to consider every possible stock from around the world in detail but he cuts down the field quite rapidly by knowing exactly what he is looking for – firms that own great brands and have significant barriers to entry, meaning they are resilient to change.
Of the 1,700 companies in their global universe, Nick Train considers just 180 of them to be truly great companies. These are predominantly found in particular industries, such as software, asset management, household services, beverages, publishing and packaged food. Around half of these are US companies, with the UK, Europe and Japan producing around 30 each. Virtually none is in emerging markets. One example is Heineken, which founded its first brewery in 1873. Beer is a very durable business and, no doubt, generations to come will be keen on it in one form or another. It is unusual to have a product with that type of longevity built in and for an investor it is most attractive.
Intriguingly, Train also has a particular interest in sports franchises and was an early investor in Manchester United shares. I suspect he was somewhat miffed when they were taken over. He still owns Celtic Football Club in one of his existing funds, though. The club is only marginally profitable but it attracts worldwide audiences and, for a global brand, it is absurdly lowly valued, so he believes there is great potential.
A further cornerstone of the Lindsell Train philosophy is to run a concentrated portfolio representing their very best ideas. Quite simply, they do not want to water down their potential returns and to this end the portfolio will contain just 20 to 25 stocks. The fund is the antithesis of today’s fast-moving investment world of impatient investors buying and selling at every moment and computerised trades lasting mere fractions of a second. Instead, it will be true to the Warren Buffett principles of holding shares for the very long term with little turnover.
I have known Mr Train for over 20 years. As well as being a fund manager of great talent he is an enlightened speaker, if you ever have a chance to see him do take it. His investment approach might seem unexciting but to my mind this is exactly the reason to own the fund. In a world of uncertainty, the unglamorous can provide great opportunity. Many large, global businesses are presently unfashion- able and good value, which should ultimately benefit investors as they continue to grow their profits. I think investors should consider following Nick Train’s lead and tuck the fund away for the long term.
Mark Dampier is head research at Hargreaves Lansdown