So, welcome to the latest Moneywise UK podcast. I'm George and I'm your host. And today I'm really delighted to be talking to Nick Train. Now, Nick co-founded Lindsell Train back in 2000 and he has more than 40 years' experience in investment management. He's the portfolio manager of the Finsbury Growth and Income Trust. And this trust celebrates its 100th anniversary this year. Obviously he hasn't been running it for 100 years, but it is the anniversary. He also manages UK equity portfolios and jointly manages a global portfolio as well.
Now, I guess this conversation continues something that I set out to do this year, which was fewer podcasts, but kind of conversations with people who I think have particularly interesting stories. They have experience and they have perspectives to share. So, I'm as I say delighted that Nick's agreed to come along to this. Nick, welcome and thank you so much for joining me today. I always love to start, what I say is get to know the person behind the kind of investment philosophy or just get to know the person. So, anything I say, please correct me as we go through, but I think you've spent 40 years in investment management. So, what originally attracted you to fund management and what is it about investing that still excites you today?
George, thank you. Thank you for the introduction. I hope that it's a pleasure for you, for your listeners. Yeah, I mean, Finsbury, as you say, 100 years old. I just lapped 26 years of responsibility for that investment trust. So, it's almost a quarter of the history of that company. I'm very proud of that, actually. [laughter] I like longevity. I like durability in the things that we invest in and yeah, I'm a little bit proud to still be in situ after that period of time. Yeah.
No. Um, it's a good question and I mean the job is so privileged in a way because it allows you to be curious about the world, curious about history, curious about the future, and to try and derive judgments and forecasts from that just natural curiosity that I guess everybody has about the world that we live in. I just happen to have been paid for it and I feel, yeah, very privileged for that.
I mean, I do think there's a couple of other factors here and one that might sound a bit sort of pejorative or disparaging to myself or maybe other participants or professionals. What I would say is whatever anybody says about investment, it is speculative. It is speculative. Prices in the market know pretty much everything that can be known already and therefore it's only what is unknown that is going to move things in the future. And that makes it necessarily speculative. And I just observe in everybody and also in myself, you know, people enjoy a flutter. Do you know what? There is this gambling instinct clearly deeply embedded in homo sapiens.
And again, you know, I say it's been a privilege. You know, what fun to have been — obviously you've got to deliver results over time — but what fun to speculate about the future. The more disparaging aspect personally maybe is that I recognize in myself a certain streak of miserliness. Do you know what I mean? I like the sense of accumulating wealth for my clients obviously, but you know, I'm participating in that. I like this idea of wealth compounding over time. I like the sense of owning, even if it's only partially owning something of enormous, enormous enduring value.
I mean, so for instance, I mean we've had a — my God, we've had a very, very tough time over the last three years with our investment in Diageo. I mean, it's just been horrendous. But before this tough period for Diageo and still today, there's something in me that thinks on behalf of my clients, we own a piece of Guinness and a piece of Johnnie Walker and one in every three bottles of Krug sold around the world. You know, that goes to Diageo's shareholders' benefit as well. I just — that sense of owning something of extraordinary scarcity and long-term value, psychologically that's been important to me as well and I think has been a motivator.
How about that for an answer?
I like that. Can I push back on something which maybe we were going to cover further on and perhaps it's an unfair question and I do agree with you is that, you know, I've said in previous podcasts is I do have a financial advisor and one of the reasons why I have a financial advisor is that I used to enjoy buying shares and you and I think you're right. It's that little bit of gambling, isn't there? It's like, well, maybe I can, you know, do really, really well if I buy the share. And I just felt for me that wasn't a healthy place to be.
But I think it is — it's one of those things I think I do want to talk to you about is that are we getting to a stage where people go, do you know what, it's just safer for me to buy the index, you know, rather than, you know, saying like, you know, it's such a hard one, isn't it? Like as you say, Diageo or whatever. If I could just buy a FTSE 100, couldn't I? And away I'd go. And how do you feel about that? Because that must be something that maybe you've been challenged on particularly because of this period of time where it's been difficult.
Well, I mean, I too have a financial advisor and with the growing complexity, I have to say, more of tax, I felt that I, you know, that's not my expertise. I've definitely valued the advice I've received from an adviser about organizing my and my family's assets. So, absolutely.
And the second thing I would say is that fundamentally, particularly in this polity of the United Kingdom, I think that individuals' exposure to equity is tragically low. You know, I really wish more people in Great Britain had exposure to the stock market and to a degree to the UK stock market because I just think it would be so beneficial for the economy but also probably for people's long-term savings outcomes to have greater exposure to equity as an asset class.
And absolutely I would not have any compunction about arguing that the most appropriate first exposure to equity for the average investor is a passive product. I mean absolutely, I mean if you've got no equity, having some equity, that's already a risk, so why take the very considerable further risk of concentration or just trying to pick stocks? I agree. But let's encourage people to own equity.
Maybe I'm not going to get into here possibly because I'm still not sure even now that I've got an answer to it. I'm not going to get into the active versus passive for the more experienced investor. But all I would say is that I have felt personally duty bound, honor bound throughout my career to invest alongside my clients. I own no passive investments. The vast majority of my equity investment is held in the shares of the product that you — the investment trust that you mentioned earlier.
And you know, I'm a bit disappointed by the performance over the last five years and I recognize that we take risk. I hope it's prudent risk, but you know, you never know. But I don't want anybody to ever be able to say Nick Train wasn't taking the same or even more risk than I was. And I, you know, I felt that has really been an important principle. If I'm here seeking to justify a fee that's higher for a passive fund and I'm seeking to justify that fee by taking more risk than an index fund, then my goodness, I need to be fully exposed to the downside as well as to the upside on behalf of my clients. Does that make sense?
Yeah. No, and I think it is a really powerful thing because I think people are too polarized as to say one is right and one is wrong and as you say even if you're right at the start of your journey, just having some equity exposure is good and whether that is through a passive or whether you take a step into active, it's really more about encouraging people to go into there.
But it leads to — I do — well, or this has been valuable for me throughout my career. Peter Lynch, the great Fidelity investor, Fidelity Magellan. Peter Lynch wrote a book. It's probably out of date now in a sense, but he wrote a book called One Up on Wall Street. And in One Up on Wall Street, Peter Lynch argued that the man or woman on the street in many ways has as good an access to winning investment ideas than the highest paid analysts at investment banks.
And his argument was, you know, if you see a product or a service that you think works for you, then it's highly likely that the company that's delivering that product or service is going to be a good investment. And maybe you'll have a sense of that before the ivory tower analyst. Do you know what I mean? And again, yes, let's agree everybody at the start of their journey passive is right. But that doesn't mean that smart people responding to their own perspective of the world around them can't also make very, very good investment decisions even if they're not so-called professionals.
I wouldn't want to discourage people from backing their perceptions of the world. Yeah, of course. Putting all of their net worth into just two speculative ideas, that is a terrible idea. But yeah.
And I think that's such a good lesson, isn't it? It's like, you know, if you see something and you think, 'Yeah, that's a really good idea and I'm using it,' and I think then why wouldn't you?
Um, one of the — sorry, this — I feel, you know, anyone listening to this, that wasn't a question that was on here, so I just threw that out to you, but it does lead onto this next question. And again, I'm not sure — I don't necessarily agree with this, but I do think that when we look at the UK and we look at it against the US, is that the UK stock market is sometimes characterized as kind of old economy, relatively low growth, and obviously we've seen its share of the global kind of market diminish as the US becomes a larger part of the index. Do you think that's fair? And what do you think investors may be overlooking?
No, I do think it's fair and you know, I do — you know, don't misconstrue — you know, I'm a patriotic Brit as well as being someone who runs UK equity strategies and like so many I've wondered how is it that the UK's contrived not to participate — it has a bit, but not participate as fully as it might have done in this extraordinary period of wealth creation that's been led by the United States.
And you know, one looks at that decision that was made and it's actually 10 years ago, almost exactly 10 years ago, British institutions sold out of ARM. They sold it to SoftBank, the Japanese. SoftBank subsequently listed ARM on NASDAQ, not on the London Stock Exchange. If ARM had remained a London-listed company and its share price has performed as well as it subsequently has, today ARM would be the second biggest company in the UK stock market.
And that's a huge chunk of value that in a sense the British economy, British investors have missed out on from a British company. You know, it's still headquartered in Cambridge. I mean, all of the intellectual property is there in the UK, but somehow our stock market, our institutions weren't willing to back it or were happy to take the takeover offer. And yeah, it is a disappointment.
I, you know, and I think, you know, your question is absolutely pertinent and you know, in a way I find it difficult to rebut it certainly relative to the not very adequate returns that I've generated over the last five years. But what I would say is that the question I ask myself is can I construct a portfolio made up of London-listed UK companies that offer my clients access to the big money-making themes in global markets?
And actually I think we can and I think that there are any number of truly world-class business franchises listed on the London Stock Market, very often with digital assets, digital strategies, that it's not difficult to look at them and say, you know, you are as competitive at what you do as anything listed on NASDAQ. And then you look and you think, well, the one thing that's different is that your valuation is rather different from the comparable NASDAQ one.
And I don't know. I certainly don't feel — you know, we've got a big holding. Again, it hasn't done very well for the last three or four years. We've got a big holding in Experian. I don't know if you or your listeners know Experian, but you know, that is the world's biggest credit rating agency, including the biggest rating agency in the United States. And that company has more proprietary private data on more individuals in the world and more businesses in the world than kind of any other entity.
And Experian is aggressively using its technology capabilities, of which a very considerable technology prowess, to utilize, harness AI tools to derive even more value from that data. That's a London-listed company. It's the biggest of its type in the world. It's got a unique data set. It's got a huge opportunity presented by AI and yet the shares haven't done very well. I've got to think that's a big opportunity.
But can we — because I'm going to jump a question, a couple of questions actually, because you talk about AI and everyone talks about AI, don't they? And it's fascinating because some of the — I think some of the companies that you own, and I'm probably thinking more about Rightmove, perhaps it's a perception of the markets that they're a victim of AI, whereas you've kind of argued oppositely to that. What do you think — because you know, you talk about Experian, you talk — you know, and I think you've talked a lot about Rightmove as well. What do you think the market is misunderstanding? Because I guess the market is so focused, isn't it, is that everything is about AI and everything is going to be changing because of AI and yeah, our whole world is changing, isn't it?
So I'll try and answer that. Just — and perhaps I was ahead of myself referring to Experian's strategy vis-à-vis AI, but the point I wanted to make about Experian is that, as you say, there's a perception that the UK — it's not my phrase — is Jurassic Park, you know, it's just the industry of the 20th century in graceful decline. Maybe too high a proportion of the UK stock market even today you could characterize in that way.
But if you are a stock picker — and you don't have to be, but if you are — you can find a business like Experian that I don't think I'm imagining this, that is the global leader at what it does. I mean, you know, 23 out of the 25 biggest financial institutions in the United States rely hour by hour on Experian's data and software services. It's an extraordinary global franchise that just happens to be listed on the London Stock Market and I wish there were more of them, but that's the key.
I do have a lot [laughter] I can and maybe even should say about Rightmove and/or AI. Um, I mean, I don't want you to say that you're not allowed to say.
Yesterday, I think it was yesterday, Anthropic announced a major joint venture with Salesforce in the United States and Salesforce's share price was up 20% or something on the announcement of this big strategic combination of Claude's AI brains with Salesforce's myriads of semi-captive corporate customers and the incredible and constantly replenishing business data on Salesforce's cloud platform.
Putting the two together creates a lot more value for Salesforce, but it also creates a lot of value for Anthropic Claude because it could take decades for them to access that business data and that client network. I mean, who knows how long that might take them.
So, are there other businesses in the UK that have comparable deeply embedded digital relationships with their customers and huge data sets that smart AI could extract more value from? Well, yes, there are. I mean, Experian is one, but Rightmove is another one. You know, if you've got 90% of all time being spent on a real estate portal in the UK being spent on Rightmove, then no LLM, ChatGPT, no one can have the same insight into what's going on between UK individuals' interests and aspirations in the real estate market and the estate agents who list the properties.
I mean, it's just a unique space where, put it this way, I'm not at all surprised that Rightmove has invested over the last couple of years and as a result somewhat depressed its profitability. Rightmove has invested in a service that it calls Ask Rightmove, which is essentially ChatGPT — in very broad terms ChatGPT — but for the UK property market.
And you know, you don't know for sure, but you know, who's got the right to win delivering conversational AI-powered search to, you know, millions upon millions of UK individuals? Is it ChatGPT or is it Rightmove which already has this incredible place where all of the inventory is and all of the attention is?
Rightmove's share price has fallen over the last 12 months partly because of the investment that they have been making in their own AI capabilities. But — and maybe, you know, who am I to say, you know, you have to learn to be humble when share prices go against you. But my colleagues, crucially the company itself, don't see any impingement on their business as yet from LLMs, but they do see significant greater engagement both from agents and from customers as Rightmove is deploying its own AI tools.
I just think the upside if Rightmove can execute is very, very great [laughter] you know, and yeah, it's worth having an investment in.
And I guess this comes to darting back to another question is you run this very concentrated portfolio. I think just looking at the fact sheet that's kind of up in front of me, I mean 84.4% is in the top 10 holdings. Um, and what gives you the confidence to kind of put so much capital behind relatively few businesses and then how do you distinguish between genuine conviction and emotional attachment to an investment?
And it's quite interesting actually kind of when you talk about Rightmove is that it's very easy for — I say in inverted commas — for us to turn around to you and go, well, actually, you know, what a bad investment that's been. But as you've spoken about it and actually it's often what we don't see that is actually where the opportunity potentially lies, isn't it? So, um, and I guess, you know, I don't know, I'll let you answer this really, but I guess the advantage of a concentrated portfolio to some extent is actually it does get you to know those businesses really well, but it would just be really interesting to get your perspective around that.
Well, I and Michael Lindsell, we were both exposed to Warren Buffett at a formative time of our careers and you know, that was such a — I spent — such a valuable exposure for me. But that framework, that Berkshire Hathaway investing framework, it was such a revelation to me and really all I've ever wanted to do subsequently was to try and replicate that to the best of my abilities, which I, you know, has been proven — I'm not in Buffett's league — but that's what I've wanted to do.
And yeah, you know, one of the key value adds for Buffett has been avoiding — sorry to use his silly word — diversification. I mean, there's issues with running highly concentrated portfolios. Believe me, there are issues with it. But one of the almost certain ways to deliver mediocre returns is to have a highly diversified portfolio of low-conviction holdings which you often don't know very well, I would say.
And yes, you're absolutely right. The Buffett view was you don't need many investments and as long as you have investments in substantive, easy-to-understand, robust businesses that can get through periods of difficult trading — because every business will have a period of difficult trading at some point — then that's the basis for an investment strategy. So, to the extent that I wanted to quote copy Warren Buffett, that portfolio concentration, that was a key tenet of his approach.
I mean, the other thing I'll say, and I don't know, I'll say it because I think it's interesting and it might strike, you know, a bell with your listeners. I mentioned a great Fidelity money manager, Peter Lynch. Another great Fidelity money manager closer to home, Anthony Bolton. And I always remember reading Anthony Bolton's book where he described stockpicking as like walking along a pebbly beach.
He said, like walking along a pebbly beach, every time I turned over a pebble or a stone, he said there was an investment idea hiding underneath that pebble. And I read that and I thought, goodness, that's not what it's like for me at all. [laughter] You know, for me it's like I'm walking on this golden sandy beach and I walk for 50 miles and every so often there's a huge rock stack standing on the beach. There's this vast boulder and I think, 'Oh, yes, that's an investment idea.' But they've just never come very often for me. And I suppose I felt that I needed them to be really, really obvious. And that's another reason why I've ended up with concentrated portfolios.
And I get — I keep jumping from question to question because there is another one I was going to ask you, but I want to ask you because I think this goes on really — I guess there's two questions that kind of run into each other really now from what you've said. And I love that kind of finding those big boulders, you know. And one of the questions I was going to ask you about patience, but I'm going to leave that one to the next one. But your philosophy is kind of about owning quality businesses for very long periods, but valuation obviously still matters and it's really nice to hear your passion around the companies — some of the companies you hold, even if they have, you know, not necessarily done what you would have liked them to have done recently.
How do you decide to wait — what, you know, when this big boulder — how do you decide when a wonderful business has simply become too expensive or when a fallen share price represents a genuine opportunity than a warning, I guess?
