Central to his style, “consciously copied” from godfathers of modern investing Warren Buffett and Charlie Munger, is a proposition about the enduring power of brands. The bulk of Train’s investments are household names – Irn-Bru, Cadbury maker Mondelez, Unilever, Burberry – companies that are as recognisable today as they were decades ago. Or “beloved brands” as he likes to call them.
Train’s office walls are lined with framed ad campaigns from Shiseido, Pepsi and Brown-Forman owned Jack Daniels: businesses he and co-founder Michael Lindsell still hold in their portfolios today.
Each company is represented by a pair of posters – a vintage ad from the first half of the 20th century juxtaposed with a glossier looking ad campaign from the year the pair first bought shares in the company.
“There’s an inescapable truth in this industry that you have to take some sort of risk. And if you can’t do that why on earth are you doing anything?”
“We think things that last are almost always good investments,” says Train.
The trendy and new may generate an initial buzz but “they can often be quite ephemeral”, he says, and aren’t usually the best way to build sustainable wealth from investment.
Even in an era of seismic technological disruption, where online retail giants such as Amazon have changed the game for traditional brick and mortar outfits, Train believes the right brands will become even more valuable in the 21st century than they were in the preceding one.
But buying into quality brands comes at a cost. Like other growth managers, Train has been criticised for targeting companies that are expensive. Valuations matter, he says, but they aren’t the most important metric in determining a company’s long-term value. “If valuations were all you needed then this [investing] wouldn’t be so difficult to do,” he says.
Investors are privy to the same set of facts, company financial reports, price to earnings ratios, etc. What you need is “a leap of imagination”.
Train asks himself the same question when evaluating a company’s potential: “Will this product or service still be as beloved or as valuable for its owners in 20 years’ time as it is today?”
“That’s not the only question a potential investor can ask but it’s an incredibly useful one because if the answer is ‘yes’ then you’ve learnt something really important about the nature of the asset you’re investing in.”
Take a chance
Train is a firm believer that “investment is as much of an art as it is a science”. He tells prospective job applicants that you don’t need a higher maths degree or a sophisticated understanding of algorithms to succeed in this business. “Certainly if you did, I wouldn’t still be around because I’m three-quarters of the way to being innumerate.”
Train himself comes from a liberal “with a small l” arts background. He got his start in the industry at GT Management in 1981, fresh from completing a modern history degree at Queen’s College at Oxford University.
GT co-founder Richard Thornton, one of Train’s mentors, took a chance on him. He was “this tremendously charismatic, mercurial, borderline genius guy”, he recalls. “I knew this was a business and an individual I wanted to work for and with because he was so energising.”
Train left GT in 1998 after it was acquired by Invesco and spent a two-year stint at M&G Investments as a director then head of global equities before it, too, was swallowed up by a larger firm.
It was “the merry-go-round of change in ownership in the City” that convinced Train and Lindsell, who he had worked with at GT, that they needed to create their own business.
The duo, both in their early forties at the time, agreed it was “now or never” if they were going to “have a shot at creating a working environment we think will give us a chance of meeting our clients’ aspirations and where, if it’s ever going to be sold, we’re the ones taking the decision to sell it”.
When Train adds or subtracts a stock from the portfolio, the market sits up and takes notice. Last summer he purchased shares in Manchester United, his first new company in two years.
The £5.8bn UK Equity Fund, a mirror of his Finsbury Growth & Income Trust, has around 22 holdings, while the £5.4bn Global Equity Fund holds about 27 companies.
Train has stuck by some controversial holdings in recent years, including beleaguered publisher Pearson. Although its share price has halved since a peak of £19.70, the manager says there are few credible competitors in the digital education space, suggesting barriers to entry are high.
“If it was easy, new tech companies would’ve just taken that away from them all together, but you can’t point to a new entrant competitor that’s ripped the industry apart.”
But having such a highly concentrated portfolio is a risk, Train admits. “What we do is much riskier than the average professional investor’s portfolio and certainly a hell of a lot riskier than investing in a passive tracker fund,” he says. But it is a strategy that has served him well.
The Lindsell Train UK Equity Fund has generated total returns of 318.51% since launch in July 2006, almost three times higher than the FTSE All Share (113.48%). The Lindsell Train Global Equity Fund, launched seven years ago, is also up significantly on its MSCI World Index benchmark, with returns of 277.36% versus 122.65%.
According to Train, this performance doesn’t guarantee the risk will have been worth the reward. “Who knows whether that will be true in the future,” he says.
“There’s an inescapable truth in this industry that in order to generate returns that are different from the average you have to take some sort of risk. And if you can’t do that why on earth are you doing anything?”
Train says he undoubtedly has some mistakes in his portfolios. He says the rise of technological disruptors like the ‘Faangs’ has made it more difficult to make projections about a brand’s staying power.
“What we would expect is for technology and the Faangs to cause an acceleration of loss of brand equity for a wide range of names in the next decade,” he says. “It makes our job more challenging and means we are more prone to making mistakes, and I’m sure we do have mistakes in our portfolio.”
Train has largely steered clear of obvious tech disruptors like the Faangs, preferring to own companies that use tech in a transformative way but are not outright tech companies. He counts Relx, Nintendo and the London Stock Exchange in this category.
Train says he might own the mega-Faang stocks one day, in 30 or 50 years’ time. Right now “they’re just too young”, he explains.
“That is probably an admission of fallibility but we’re not that good with young companies that haven’t been tested yet.”
On the disruptive potential of Brexit, Train admits he might be “too complacent”. “There is a strong theoretical argument that it is impossible to make money out of trading, thinking about issues like Brexit,” he says.
But Brexit has arguably made life difficult for some of his holdings. Consumer goods giant Unilever for one has been left more susceptible to potential takeover bids. It came perilously close to abandoning its London HQ, scrapping its dual structure, though CEO Paul Polman denied this was related to the UK’s divorce from the EU. The plan drew sharp criticism from major shareholders, including Train, who said it was not in the long-term interests of their clients and would make them forced sellers.
“We don’t think we have any particular insight that would help us do better than anybody else in working out where we are and what might happen next,” he insists.
“People will still be using Dove deodorant, drinking Johnnie Walker or eating Cadbury chocolate whatever happens. I feel more certainty about that than I do about my ability to work out what the macroeconomic or political machinations of Brexit are.”