Nick Train on surviving the internet age

However a "mortifying" investment in Pearson and rare calendar year of underperformance for his three funds against their respective benchmarks in 2016 has resulted in a string of apologies from Mr Train., and a very modest acknowledgement of the stellar performance that preceded this.

"I think the way I would look at [the underperformance] is to say that the period of outperformance prior to that was the bizarre, remarkable, unexpected and unprecedented thing," he says. "Looking over the whole sweep of my career I had never, ever, outperformed for five or six years in succession before. So from my point of view it wasn't a question of if we were going to have a period of tougher performance but when, and how long it would last."

He says an underweight position in cyclical stocks like metals and oil companies resulted in the lag last year - a problem that has affected other well regarded UK equity managers such as Neil Woodford and Mark Barnett.

>An underweight position incyclical stocks such as metals and oilcompaniesresulted in the lag last year---Nick Train

"Periodically not having exposure to the mining sector in particular has hurt our clients and shareholders," says Mr Train, but he is keen to push on from that question. "We can talk about the rationale for not investing in these areas of the market, but we don't and never have owned metals or oil companies."

And he argues that "the really unexpected thing" was not the underperformance, but its brevity - so far this year Finsbury Growth & Income has made over double what the FTSE All Share has.

Kraft's proposed takeover of Unilever (ULVR) the largest holding across the Lindsell Train funds, played a large part in that. The company's share price rocketed following the failed $143bn (£110.27bn) deal, which also affected share prices of many of the other stocks Mr Train's funds hold. But with many of those, including Diageo (DGE) and Unilever, having notched up share price highs in recent months are his shareholders nervous of valuations?

"To a certain extent, value doesn't matter," he says, frustrated. "We think many investors grotesquely over-obsess about value when over long periods of time, what is much more obvious, is that the quality a company matters more to your long term returns. Unilever's dividends have compounded at a rate of 8 per cent per annum since 1962. If I wanted to be flippant, I could answer the question of how Unilever is going to grow its share price to meet its valuation by asking you how it grew in the past. Why won't it do exactly the same in the future? Unilever sells 160 million products every single day around the world, to 2bn people, and I'm telling you that's going to continue for the next 40 to 50 years - and it's going to get quicker."

Amazon's (AMZN:NSQ) purchase of Wholefoods Market will affect Unilever's pricing power, he adds, and the company is not without problems. "But compared to the average company Unilever still has incredible unique strengths."

Mr Train is in many ways a different breed to other fund managers, for example, his laid back aspect - today he is in a T-shirt picking at a pot of Pret a Manger pineapple - and his disavowal of the usual culture of his industry. He set up asset management company Lindsell Train with Michael Lindsell in 2000 who he says is "one of the most dogmatic and unshakeable people I've met." And the environment they have established, away from "telephones exploding in your ears" enables him to remain true to his philosophy.

And that is a philsophy that takes some nerve. Over the last six years Mr Train has only bought two stocks – Heineken (HEIA:AEX) in 2011 and Remy Cointreau (REMYF:PKC) in 2015 - and only sold two. "I do find it fascinating that it's been possible to generate really quite competitive returns doing as little as we've done," he acknowledges.

Staying out of the fray of markets extends to meetings with chief executive officers (CEOs).

He explains: "I'm not sure if fetish is exactly the right word, but it seems to me that seeing lots of companies doesn't in any obvious way lead to improved performance, so why undertake so much of it if it isn't helpful? I say fetish because it's understandable that professional investors have to try and persuade amateur investors that they are in some kind of advantageous position that justifies the fees they get paid."

Instead, Mr Train finds more value in his book shelf which is stacked with autobiographies of investors such as John Templeton and Warren Buffett.

"Unquestionably the most valuable thing I've ever done is to read the autobiographies of great investors," he says, adding in doggedly self-effacing style, "every single one of our ideas we've copied off much smarter people than us."

Problems with Pearson

One company he has been meeting with regularly though, is Pearson (PSON) which has issued five profit warnings in the past four years and suffered a record £2.5bn loss in 2016. Earlier this year Mr Train confessed to being at a loss as to whether to buy more or sell his stake.

"Yes it's still painful," he says sharply, eventually conceding that "We know we need to either double the size of the holding or sell it. Candidly it could be either of those two decisions. Maybe this is our fault but we just don't feel we have enough information or insight today to make a call as radical as either of those. It is conceivable that the billions of pounds Pearson has invested in digital education products will be pissed away. But there is no other company in the world that has the credibility or has made a comparable investment in educational digital products and software to Pearson's.

"Whatever anybody says about the company, and however maladroit the execution has been, and however maladroit our investment has been, the company has definitely made a meaningful transition from being an old-fashioned text book publisher to some sort of technology-driven software company. I'm not saying Pearson is going to make a success of this, by God it's not done this so far. But if it isn't Pearson, it's not obvious who else it's going to be. It pisses me off that investors and the media want this company to fail. People seem to want it to fail and I find that odd."

Pearson is not the only company whose success depends on its digital transition. Mr Train says all of the stocks he own will need to transform to survive the internet age. So does that mean he thinks all his other stocks, including consumer goods companies such as Unilever and Diageo, are internet companies?

"No, I don't think that Burberry (BRBY), for example, is an internet company" he says. "But I do think that Burberry's future success is going to be critically dependent on its success in developing its digital customer base and relations with customers that way."

So what about the stocks he doesn't own? With such concentrated portfolios - Finsbury Growth & Income, for example has just 25 holdings - and so few acquisitions, he must have some regrets.

Lindt (LISN:VTX) is a company we got really close to buying," he admits. It is an example of an enduring family-run brand of the kind he likes to buy, similar to Remy Cointreau. "That was really really dumb. A premium confectionary brand like Lindt is so rare and there are so few companies like it, so that was a bad miss. We did also think very hard about Google (GOOGL:NSQ) but in the end didn't have the guts to buy it, and that annoys us."

But apart from those irritations, Mr Train is resolutely positive. "There is a tendency for smart people to caution and pessimism, but I think it's a demonstrably a very dangerous tendency because over time equity markets have gone up a lot," he says. "I have also observed that [pessimism] messes people up and messes up their careers. I'd rather that didn't happen so I stay optimistic."

Nick Train CV

NickTrain is a fund manager at Lindsell Train which he co-founded in 2000. Between 1998 and 2000 he worked at M&G Investment Management, latterly as head of global equities

Before this he spent 17 years at GT Management, where his positions included investment director of GT Unit Managers and chief investment officer for Pan-Europe.

Mr Train has a degree in Modern History from Queen's College, Oxford.