Lindsell Train – fund manager interview with Nick Train

At Marcellus, we have been inspired and influenced by several investors. One such firm which has had an outsized influence is Lindsell Train, a UK based investment firm managing north of GBP20bn across its Global, UK and Japanese equity funds. This interview of one of its founders and portfolio managers, Nick Train, brings out some of the reasons for our admiration – the clarity of thought that brings out the conviction in your investment philosophy yet the humility to accept your limitations and that you could be wrong.
At the start of the interview, Nick Train shows how investing can be boring by saying neither is he concerned for his portfolio nor has he made any changes to the portfolio throughout the pandemic and its consequent effect on the global economy. That’s when the interviewer brings up criticism of the buy and hold approach by another successful fund manager Andy Brough of Schroders – “Trees don’t grow to the sky and the life cycle of companies is reducing, and every company has a finite size.” What would you say to those individuals who might think that stocks are there for trading and not collecting?, Nick’s response is as humble as insightful:
“I would most fundamentally say that all of us must be humble about our insights, our investment approaches in the face of the radical, inscrutability, and uncertainty about capital markets at all times, at all times. Nobody has ever or will ever identify or execute on an infallible investment approach that works for all seasons. It’s a fool’s errand. All you can do is identify a set of behaviours that constitute an investment approach, that you think give you as an individual, or the team that you’re working with the best chance, never certainly, the best chance to meet clients’ aspirations over time.
I have a huge regard for people who do successfully identify these types of life cycles for companies, and within industries, and add value for their investors by, perhaps trading is too pejorative a term, but timing things effectively.
I tried to do that 30 years ago, and demonstrated to my own satisfaction that it wasn’t my skill. I know how trite, and this is our fault, not your fault, how trite what you’ve just described as our investment approach sounds, identify great businesses and then hold them for very long periods of time. It’s so simplistic.
I’m going to add to it with another really simplistic, but I think a powerful piece of investment advice, which we do our best to adhere to, and that is the piece of investment advice that says run your winners. It’s obvious. History confirms it, that this shared crisis of outstanding businesses, great businesses do show a tendency to go up a lot over multiple decades. Of course there are counter exceptions, and of course there is a subjectivity in identifying what constitutes a great business, but when you see the potential rewards for, I don’t know, owning Unilever for 50 years. They’re extraordinary. Unilever’s share price, over 50 years, has gone up more than 100 fold. The company’s grown its dividend every year for over half a century.
The returns that you can earn from identifying a business with those sorts of sustainable longevity are very high indeed. You know what? Running your winners sounds so simple, but all of us, maybe even you yourselves, will recognize that it’s more of a challenge, both intellectually and maybe even more importantly, emotionally, it’s more of a challenge than you might think. There’s always the temptation to take some profit.
Unilever, believe me, look at the charts, unbelievable returns over multiple decades, but I can point multiple five year periods when Unilever’s share price did nothing, and what are you supposed to do when the shares of a great business do nothing for five years? The temptation is to sell. This is boring. I’m going to move onto the next idea. Maybe you get lucky, maybe your new idea is better than Unilever, but can you be sure?
over the 21st Century to date, running winners in strategically advantaged companies has been a hell of a lot more rewarding than averaging down into losers. Now that can change, of course it can change, but in the end, all anyone at Lindsell Train can do is say, “Here’s our investment approach. We’ve stuck to it. We propose to continue to stick to it. It’s up to you to decide whether it’s relevant for you, or you think it might be effective over the next period.” That’s what I’d say.
….There is no originality in what we’ve done, truly. There isn’t. We’ve just sought to read and understand as much as we possibly can about the approaches that have allowed highly successful, capital allocators to be successful, and then try and establish whether or not any of those approaches might suit us, given our intellectual capabilities, and given our emotional makeup.
I think the emotional makeup is as important as the intellectual ability, frankly. Unfortunately, the correlation between being super, super smart, and being a great investor, all great investors are very, very bright people, but I know a lot of very bright people who turn out not to be good investors.
Peter Lynch’s success was based on successfully identifying and then benefiting from baggers. Shares that go up 10 times, 20 times, 30 times, and that idea of owning something because it might go up five fold over the next seven years or something. It’s real. It does happen. Good businesses with growth, they do go up that much, and yet so many investors, and I think it’s true particularly of professional investors, think, “Oh, my job is to find the next 20% gain, and then sell the 20% and move onto the next one.”