A professional investor tells us where he’d put his money. This week: Nick Train, portfolio manager of the Finsbury Growth & Income Trust, outlines his strategy.
I recently read a thrilling book about investment called 100 to 1 in the Stock Market by US stockbroker Thomas Phelps. It’s a classic, first published in 1972. Here are three quotes from it that neatly sum up Phelps’s message and go a long way towards introducing our approach too.
“It would be hard to find a worse slogan than ‘You’ll never go broke taking a profit.’”
“Every sale is a confession of error.”
“In Alice in Wonderland one had to run fast in order to stand still. In the stockmarket, the evidence suggests, one who buys right must stand still in order to run fast.”
Profit from doing nothing
You can deduce from this that Phelps was a proponent of a “buy and hold” investment approach – as are we. Now, you may have noted I described the book as “thrilling” and wonder why such an apparently soporific approach – doing next to nothing – deserves this adjective.
It’s thrilling because Phelps lists the surprising number of US-quoted companies that have gone up in value 100-fold, admittedly over long periods. Think about that: up 100-fold turns £10,000 into £1,000,000.
He gives hundreds of examples, many substantive or household-name companies. Of course the gains didn’t come overnight. But consider, even if it takes a quarter of a century – one to 100 over 25 years still equals an annualised return of more than 20%. Is that enough to set your pulse racing?
“In the stockmarket investors must stand still in order to run fast”
As far as we can tell, there are only about a dozen among the UK’s biggest 350 companies that have gone up 100-fold at any stage over the last 30 years. Maybe these stocks are just rarer in the UK. But if we moderate our ambitions, we find nearly half the current 350 have made a tenfold gain at some stage since the mid-1980s. And even “ten-baggers” are not to be sniffed at: that’s a near-10% annual compound return over 25 years. Our job is to find and hold wonderful companies in the hope and expectation that they will go up many, many times over the period of our ownership.
Finding long-term success stories
Of course, I’m onto a hiding if you expect me to nominate some companies that might go up 100-fold from here. But let me put it this way: we see ample scope for strong growth all round the world and for many decades to come for a number of great British brands.
Consider, for instance, Burberry (LSE: BRBY); Guinness, Johnnie Walker, Tanqueray, the drinks owned by Diageo (LSE: DGE); and Manchester United (NYSE: MANU). All these brands are more than a century old, but it still seems to us that they’re really only just getting started in fulfilling their global potential. If the past is any guide, their growth will drive tremendous returns for patient investors.