Nick Train: Why I’m still holding Pearson
The British Buffett disciple has acquired something of a cult following
Nick Train, one of Britain’s best-known fund managers, has acquired something of a cult following among retail investors and financial advisers in the UK.
In the three weeks after meeting Mr Train, I come across two PR executives, one asset management chief executive and several friends who confide they have invested a chunk of their personal savings in his funds.
Mr Train ranks among a small number of British fund managers who have come close to gaining household-name status due to their purist approach to investing.
The others, which include Neil Woodford and Richard Buxton, also endorse the buy-and-hold strategy advocated by Warren Buffett, the legendary investor: buy a small number of high-quality stocks and hang on to them.
Mr Train arguably takes this philosophy to an extreme.
The Oxford university history graduate, who co-founded his company in a small, unheated flat in the London district of Kensington 17 years ago, has not removed a stock from his £3.2bn UK equity fund since 2013.
The last company he dropped — Marston’s, the brewery — is not one he is comfortable discussing. His company holds around 55 companies across three funds.
Mr Train and his business partner, Michael Lindsell, admit that observers question how they fill their days, given their low portfolio turnover.
While many fund managers justify their high fees by emphasising how much time they spend meeting company executives every year, Mr Train describes such meetings as an industry “fetish” and keeps them to a minimum.
“[Meeting company management] allows the industry to say there is something they do that the ordinary investor can’t do. But the truth is that there is no correlation between access to company management and superior investment performance, there just isn’t,” he says.
Speaking from the company’s offices in St James’s Park, Mr Train says much of his time is instead spent reading, and highlights a pair of bookshelves in his conference room that he refers to as his library.
The library includes Capital in the Twenty-First Century, Thomas Piketty’s examination of wealth inequality, Lean In, Sheryl Sandberg’s feminist bestseller, and Too Big to Fail, Andrew Ross Sorkin’s depiction of the events that led to the financial crisis.
“Very, very early on, before I started applying for jobs, I had a dim understanding that this was a job where you got paid for reading the newspaper, and it just seemed not like real work. As a historian, that’s interesting,” he says.
New hires at Lindsell Train are told to read The Warren Buffett Way, Robert Hagstrom’s in-depth account of the so-called Oracle of Omaha’s career and investment approach. A special subsection of the library is dedicated to books about Mr Buffett, who Mr Train clearly reveres.
“One of our favourite Warren Buffett quotes is ‘the ideal holding period for an investment is forever’, and we are doing our level best to try and put that into practice,” he says.
“People do [question] what we do, and an answer might be we read these books. We read a prodigious amount, both about our companies but also about industries, about financial history and the career paths of other, much more successful investors than us. We want to understand the people who are really good at this and how they have done it.”
Mr Train and Mr Lindsell are clearly already good at what they do. Their investment trust, Lindsell Train, has been the best-performing trust in the UK over the past 10 years, according to Quoted Data, the research company. A £1,000 investment in the trust one decade ago would have grown to more than £7,000 today.
Lindsell Train’s funds also routinely feature in lists put forward by influential research groups and investment platforms such as Hargreaves Lansdown, Morningstar and Which Investments of the most-popular or best-performing products.
The hype around the company has helped its assets grow nearly 40 per cent last year, to £9bn — its fastest annual growth rate.
But Lindsell Train has come under pressure in recent months. Last year Mr Train’s UK equity fund was up 11 per cent, but underperformed its benchmark for the first time in five years. The company’s £2bn global equity fund also underperformed its benchmark.
Pearson, the UK-listed publishing business that used to own the Financial Times, has been a persistent thorn in the side of both funds. Last month Pearson’s shares fell 30 per cent in one day after the company issued a profit warning and signalled it would cut its dividend in 2017.
In Mr Train’s latest letter to investors, he said he was “mortified” by the heavy losses Pearson incurred last month. The Lindsell Train investment trust, which is also exposed to Pearson, was the worst-performing trust in January in price terms, figures from Quoted Data show.
Mr Lindsell hints that if the problems at Pearson continue, the company could find itself in the unusual position of being removed from the asset manager’s funds.
Mr Train seems torn over how to respond to the problems facing Pearson, and whether the company, whose share price has nearly halved over the past five years, is capable of turning things around.
“We think about that [holding] carefully,” he says. “We are pretty stubborn, but we have got to ask ourselves if this company can deliver real returns over a 20-year period. If its competitive position has changed, or there is new technology that has undermined its market position, that is when we get worried.”
Although he has far bigger stakes in other global conglomerates, such as Diageo, the distiller, Unilever, the British-Dutch consumer goods company, and Nintendo, the Japanese games company, he has held on to Pearson for nearly 10 years, and is reluctant to give up on the publisher.
“It is idle to pretend that we are satisfied with the investment return [Pearson has] not achieved for our clients over the holding period,” he says. “For very understandable reasons, it is an extremely unloved company. But the history of other companies that have made a successful transition from analogue to digital [shows that process can be] hugely rewarding for shareholders, so we’ll see.”