Nick Train runs Lindsell Train Limited in the UK and has one of the best track records. Even though, legally, our readers in India could invest in his funds, realistically, few of you are likely to do so. And yet I think this is one of the most significant interviews we have done. It's also a rare interview - Train hardly ever gives any interviews and has never done so to an Indian publication.
Unlike a majority of fund managers, Train is a true buy-and-hold investor. As the title on our cover hints, he hardly ever sells. Even more remarkably, he hardly ever buys anything new! In fact, he specifically tells us that he has just been through a four-year period when he did not buy anything new. All his fresh investments went into stocks that he already had. That's a degree of conviction that is absolutely amazing.
Train says some truly contrarian things in this interview. For example, "In my opinion nothing reliably indicates markets as cheap or expensive. For this reason, as outlined above, I believe it is a better bet to assume that equity markets are always cheap." Always cheap! That sounds really strange to the ears of anyone who is a devotee of value investing and an acolyte of Warren Buffett. In fact, even though he mentions and quotes Buffett often, he seems to have his own take on the basic paradigm of value investing vs growth investing.
One of Train's counter-intuitive principles which drive his investments is about the whole idea of booking profits. This is something that every Wealth Insight reader should read carefully and understand. He has written earlier, "(Peter) Lynch ran his winners, arguing that if a share has done well - at least for reasons that are explicable and not wholly speculative - then there is every reason to expect it to continue to do well (although always remembering that nothing goes up in a straight line). He (and we) dispute the conventional wisdom that says: "It's never wrong to take a profit." It can be very wrong. If by doing so, you permanently reduce your interest in a great long-term investment. Share prices of the best companies double, then double again and again over time. Locking into that observed propensity for wonderful businesses to compound wealth for their owners is at the heart of our approach."
The passion for 'booking profits' that many Indian investors display is quite counter-productive. Basically, it forces you to sell your winners and by implication, holding onto your losers. For equity investors, this is probably the most important takeaway from Nick Train's remarkable ideas.
Just as remarkable as his devotion to holding onto good stocks is his scepticism for the macro numbers that make up the day of the investment managers and analysts who are routine talking heads on business TV. Things like interest rates don't matter to him at all. In fact, little else matters except selecting businesses that will grow and then buying them without being overly bothered by value. He specifically says, "On my time horizon the calibre of a company is much more important than its value. You can be wrong about value in the short term but still have a great investment over time. My worst errors have come from overestimating a company's business model, not overestimating the worth of a fine company."
Can investors absorb these lessons and apply them to their own lives? I believe they can. In fact, Train's investment methods are even more replicable by an individual investor than Buffett's. Do read - and reread - the interview closely. You'll enjoy it and learn a great deal from it.`