Nick Train predicts "golden age" for equities

"If you want different performance you must invest differently," he says, quoting renowned investor John Templeton. (In his own words) "But there is a price to pay for that difference of approach, and that is volatility relative to the benchmark. There have been great years and not so great years: volatility will continue to be visited on our shareholders."

And while Mr Train is maybe different from his peers, he admits that "we copied our elders and betters, and robbed Warren Buffett [the renowned investor]: we have identified a universe of great businesses that are committed to shareholder capital for a long time". Mr Buffett's approach is to buy shares in what he considers to be great businesses with good management for less than they are intrinsically worth, and hold them for the long-term.

"If you own a collection of shares in great businesses for long enough something happens," continues Mr Train. "They turn into something wonderful - baggers - shares that go up a whole load and are right at the core of our investment approach. The bagger seeking investor looks for shares that can at least double, and maybe treble or quadruple over time. This is an investment methodology copied from Peter Lynch."

Mr Lynch ran Fidelity Magellan, one the most successful and largest mutual funds between 1977 and 1990, which over this period made an annualised return of nearly 30 per cent a year.

Mr Train's own portfolios contain no less than 17 'baggers,' including '10 bagger' Dr Pepper Snapple which has risen 10.5 times since Mr Train bought it.

Current 'baggers' across Lindsell Train's UK equity portfolios

Source: Lindsell Train

"But I've only found six 10 baggers in my entire career," he adds. "The more shares you got that at least doubled, the more satisfaction. My best single investment was 30 bagger Manchester United Football Club - this was all about the exponential rise in TV sporting rights."

Finsbury Growth & Income's portfolio contains a number of baggers including AG Barr (BAG) (up 7.3x) Burberry (BRBY) (up 4.8x) and financial publisher Euromoney (ERM) (up 5.7x).

"The companies I hold I expect will double, or already have and will again," says Mr Train.

Part of this expectation is based on the fact that he holds companies for the long-term, and the trust's average turnover is between 0 and 10 per cent a year. He likes old companies: the average age of a company in the portfolio is 121 years, while 46 per cent of them are family owned. "It is proven that these can survive through bear markets, recession, depression, war, peace, inflation, deflation and so forth," says Mr Train.

What might become a future 10 bagger? "A unique company in the UK and globally is Fidessa (FDSA), a financial trading software group," says Mr Train. "It is right at the heart of global capital markets." So far this stock, which accounts for 5.1 per cent of Finsbury Growth & Income's assets, is a 2.9x bagger.

He is also an owner of Investors Chronicle and Financial Times owner Pearson (PSON). If the price of the Financial Times since it launched 125 years ago had risen in line with inflation, it would now cost 39p rather than £2.50. "This shows what equity can do for you to protect against inflation," he says. "Inflation does a lot of 10 bagging over time."

Mr Train is confident on equities going ahead. "We are very bullish because I believe we are on the verge of a golden age for equity investing," he says. "A positive is technology change: for example, patent applications for computing products hit an all time high in 2012: 14,000. And demographics are potently favourable. World population is not just growing but a significant part of it is being lifted out of poverty, benefiting portfolio holdings such as consumer goods company Unilever (ULVR), though there are very few periods in the last 20 years when this has been a fashionable stock."

So where does he find great companies? Often in sectors such as beverages, food producers, leisure, media personal care and software, as well as retail banks and speciality finance.

"If I had to pick out a single lesson it is that a little bit of what you fancy can be extremely beneficial for your financial well being: booze. This is the single most effective piece of investment advice I ever received," says Mr Train. "We hold a number of drinks companies. Diageo (DGE) has brands such as Guinness, Johnny Walker and Baileys which will drive more returns in the decades to come. And Young's (YNGA) is terrific: it has more than 200 freehold community pubs in London."

He almost never finds companies he likes in a range of sectors including insurance, telecoms, utilities and tobacco - not uncommon hunting grounds for income managers.

"I try to conceptualise what will be long-term holds," says Mr Train. "I didn't conceptualise tobacco being such because of political and societal pressure, but this was not as adverse as we thought."

Tobacco companies have greatly benefited other income managers such as Neil Woodford. In the 1990s they were facing lawsuits which threatened to bankrupt the industry. But British American Tobacco (BATS) and Imperial Tobacco (IMT) have returned 1,125 and 581 per cent respectively since January 1999.

Read more on Neil Woodford

"That said, a bit of me feels dubious about a product that kills its customers," he adds. "And if Australian style packets became more widespread that could hurt the share price."

Cigarette packets in Australia carry health warnings and show diseased body parts.

Mr Train's mistakes at stock level include Lloyds Banking Group (LLOY). "We had a significant chunk of capital in this, which I put down to not having enough understanding about how banks and their balance sheets are funded," he says. "Also, we invested in EMI because we like unique assets and intellectual property. I couldn't understand how owning the rights to the Beatles and other famous artists was not a licence to print money but technology has changed. This creates opportunities but also threats for investors."

Source: Morninstar, *Frostrow Capital.

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