Nick Train interview: one of the clearest bull markets in the world today

Just before the stock market crash, we spent the afternoon with star fund manager Nick Train. Here’s what he told us.

[Video filmed on 25 February 2020]

Lee Wild, head of equity strategy at interactive investor:

Nick, the Lindsell Train (LSE:LTI) was trading at an 80% premium to net assets before last year's fall. Lots of discussion around that at the time. So, it's now closer to even, obviously that's outside your control, but what were you thinking at 80%? I mean, would you have bought the shares then?  Unfair question?

Nick Train, Lindsell Train fund manager: 

No, it's not an unfair question. I mean, because we’ve publicly said that Mike and I would never add to our holdings of the Lindsell Train Investment Trust, yeah, that’s what we’re talking.

We do add all the time to our other investment strategies, yes?

I mean, I bought more Finsbury Growth & Income (LSE:FGT) for myself this week, okay. But for the Lindsell Train Investment Trust, we could never condone paying a substantive premium over assets to that trust. And, indeed, although, I mean actually this is verifiable, we have spent years warning investors in our monthly notes, and also in our annual and six monthly reports to shareholders, warning people please don't pay too high a premium to buy these shares because everybody knows what happens to investment trusts on a premium sooner or later. And that's what happened in 2019, that premium significantly, significantly evaporated.

Lee Wild:

It was going to happen sooner or later, but the conversation turns to football. So, we see it with football managers, there are highs and lows. Does the status of – and you are a star fund manager, or referred to as star fund manager, does that status put any similar sort of pressure on you either as an individual or as a manager of investment portfolios?

Nick Train:

I promise you; my wife does not allow me to regard myself as a star anything.

And, you know, I think investors – the healthiest state of mind for an investor is paranoia, yeah. I always feel paranoid and concerned, whether I'm performing well or whether I'm performing poorly. So, star, it’s just not in our – my conception of myself.

I think that the real pressure in this industry, and for, if I can put it this way, private or amateur investors as well, the real pressure is to do stuff. You know, you're constantly feeling or being persuaded that you should be trading, you should be dealing, you should be responding to all of these myriad pressures or pieces of news or whatever. The really tough thing to do is to work out a way to sit on your hands. You can only sit on your hands if you've got confidence that your underlying strategy is the right one. And I just encourage everybody to get to that state of mind where they believe in what they've – what they owe, the portfolio that they've constructed, and then try and leave as well alone as possible. Don't fund the stockbroking community by trading too much.

Lee Wild:

Okay. Well, look, this has been leading to somewhere. You own stakes in Manchester United (NYSE:MANU), Juventus (MTA:JUVE), and Celtic (LSE:CCP), do the same drivers responsible for the initial purchases in those clubs still exist? I mean, do you ever worry about their performance on the pitch? I mean, I guess I'm thinking more about Man United at the moment.

Nick Train: 

They won over the weekend, what are you talking about?

Ole’s at the wheel!

Lee Wild: 

So, you're confident then, clearly confident in the strategy. But does that on the pitch performance – I mean clearly it affects the clubs and the finances…

Nick Train: 

No, listen, listen, any kind of perspective, any kind of time horizon about these sports franchises, we’re talking about football clubs, but sports franchises in general, if you look at the valuations that were being put on leading sports franchises, including football clubs, 10 years ago or 20 years ago and compare them today, they are so much more valuable today than ever before.

Actually, this is one of the clearest bull markets, if you like, in the world today. The value of sports franchises is going up and up, and it's easy to understand why when you see the billions of dollars or billions of pounds being pumped into the sports industry by these big media companies, and now by these giant internet companies all looking to muscle in onto televising live sports.

The back end of last year, a stake was taken in Manchester City, not Manchester United, a stake was taken in Manchester City by a US technology firm, Silverlake Partners it was called, that put a value on Manchester City Football Club of $4.8 billion. That’s the highest value ever ascribed to a football franchise. And it's just indicative of the escalation in value of these sorts of assets.

You know, when I look at the investments that we have in these franchises, the three that you've mentioned, I mean actually they've been pretty good investments over the period that we've owned them despite ups and downs of their performance on the pitch. And I guess I'd also say, just repeating the three that you mentioned, Manchester United, Celtic, Juve, Juventus, you know, they are pretty high calibre, pretty high calibre sports franchises. I mean everybody around the world with even a passing interest in the sport is very, very familiar with these.

And, you know, we look at them in a way as absolutely unique global brands, and global brands, that’s what we invest in.

Lee Wild:

I guess one of the reasons for the question was harking back to the early part of this century and the late 1990s, Millwall trading at a penny on the stock exchange. So, things have come a long way since then, clearly.

Nick Train: 

Well, you know, Manchester United, when it first listed on the London Stock Market in 1991, had a market value of £20 million. Only £20 million. Do you know what it's valued at on the New York Exchange today?

Lee Wild: 

Tell me.

Nick Train: 

Three billion dollars.  So, from £20 million as a quoted company to three billion dollars.  Okay, that’s taken 30 years, you do the math, that is an incredible uplift in value, and in our opinion there’s still more to go.

Lee Wild:

Well, look, clearly the football clubs aren’t keeping you up at night, but is there anything that sort of that does, for I guess for both the UK and the global funds? I mean we’ve got a coronavirus outbreak, and all sorts of, I guess, Black Swan events.  Is there anything? Clearly you can’t worry about you don’t know is going to happen, but is there anything about the industry or about your investments that you lay there and think ‘well, crumbs, that’s a concern?’ Or do you sleep easy?

Nick Train:  

Our whole thing is the attempt to construct portfolios made up of companies that are intrinsically very low risk businesses. That what we're trying to do, to invest in the strongest, most predictable companies, companies that have been successful for decades in the past, in some cases, centuries in the past where we've got some confidence that they will continue to be successful into the future.

Do you know, that sounds so simple, it is quite a simple idea, but my goodness, if you get it right, if you invest in a business that continues to prosper over the next 10 years, so you're going to have an investment success.

What I will say though, what I will acknowledge is that there's no question in the 21st century, technology change has accelerated. And we've seen businesses that we've admired for many, many decades stumble and lose their way. Although equally we've seen companies take advantage of new technologies and create much more value far more quickly than we would ever have dreamt, and that makes us – I won't necessarily say lie awake at night, but the first question we ask about any business is, is technology the friend or the enemy of this company?

And I still would argue that your answer to that question, that's probably the most important question to ask about any business you contemplate investing in today.

Lee Wild:

Okay. There's the argument, growth stocks versus value, it's gathered pace over the past 18 months, I guess. Growth has dominated for a decade. How do you see the trend continuing?  Is growth going to dominate value for the foreseeable future or do you see a sort of turning point anytime soon?

Nick Train:

Now, Lee, that’s exactly the type of question that I always say ‘I have no idea. I haven't the faintest idea.’ That involves making predictions about something that's not just – it's not just difficult to predict the answer to that question, it's actually impossible. No one knows, and no one can know, and therefore we try and avoid spending too much time angsting about things to which we know there is no correct answer.

What I will say to you, and this is not directly answering your question, what I will say to you is that the companies that we are invested in, I would say are more optimistic about their growth prospects and completely new avenues for growth than they were five years ago. And I think, you know, when you think objectively taking a step back, looking at the world as it is today, two massive drivers of growth, let's say digital technology, and also this emerging market story, you know, that's still – they’re both still at very, very early – very early stages.

You know, when I think about a business, you know, a big holding for us, a business as apparently ‘dull’ as Unilever (LSE:ULVR), say. I mean we love Unilever. But when you listen to Unilever talking about the opportunities still available to it in emerging markets, Unilever quite credibly will say ‘we think the next 50 years are going to be better than the last 50 years’ just because the opportunities are so much greater for their brands. And believe me, the last 50 years for Unilever were pretty good.

So, I don’t know whether growth or value is going to do better. I don't even know whether Unilever is a growth stock or a value stock. It depends which side you want to look at it one morning over another. But I can assure you at the corporate coalface as it were, companies have got lots of ideas about how to grow.

Lee Wild:

Well you mentioned earlier about technology and sort of trends that you monitor closely. I guess another trend that's really gathering steam is ethical investing. Are you planning to fully integrate Environmental, Social, and Governance (ESG) into your process at all?

Nick Train:

Well, I'm not quite clear what fully integrate into our process means, but what I will say is that, you know, as we've already established, what we do is invest in businesses on a much longer time horizon than perhaps other professional investors. We've owned companies for 20 years, and we're sincerely hoping to own them for another 20 years.

What is absolutely self-evident is that no company is going to survive and prosper over the next 20 years unless they pay close attention and respond to their consumers’ requests and requirements. Every company has to acknowledge that customer's ethical standards, their choices for the way they want to live their lives is changing, and if the companies don't respond to that, then they're lose out.

So, absolutely, when we meet with businesses, we are strongly encouraging them to respond to societal, political changes, unethical changes.

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