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Nick Train: why I taught myself to be bullish

A defining moment in Nick Train's career came when he stopped trying to sound mature and embraced bullishness, he writes for Citywire.

Nick Train: why I taught myself to be bullish

In Jeremy Siegel’s magisterial book Stocks for the Long Run he notes that just one dollar invested in US equities in 1801 would have generated one million dollars of real total returns by 2014, nearly 7% a year compound above inflation. 

Closer to home, the FTSE All-Share Index was first constituted in 1962, with a base level of 100. Today it stands at around 4,000. That is around 7% a year compound, and that’s just the capital gain. 

Since that same year of 1962, Unilever’s (ULVR) dividend has not only never been cut, it has compounded at 8% a year, for the last 55 years. The most recent increase, the 2017 final dividend, was up 14%. 

The Scotch Whisky Association tells us that in 1937 global shipments of whisky were 22 million hectolitres and by 2016 these had increased to 340 million, a compound growth rate of 3.6% and enough to create incredible value for the owners of global Scotch brands. 

In 1919 the average American had to work 1,800 hours to earn enough to buy a fridge; by 2014 one could do so for less than 24 hours' labour and the product would be far superior. One reason for that price drop is this: since 1850 the CRB Commodity Index has fallen 84%, adjusted for inflation, as human beings have got orders of magnitude better at mining, agriculture and just generally making stuff.

'The cycle' stokes fear of the bear

Nothing moves in a straight line of course, but it is too easy to be blasé about these measures of long-run wealth creation. It is also important to note that the sweep of history requires us to interpret these price series as trajectories, as long-term directions of travel, because that’s how they make best sense. They reflect incremental gains in knowledge and wealth, steadily accumulating over time. 

Yet today economic, stock market and political debate often doesn’t do that. Instead it insists we see the world in terms of 'the cycle'. From this cyclical perspective, for every encouraging up there is an inevitable down. Investors and citizens are advised to fear the worst because a mysterious force called 'reversion to mean' demands it. A bear lurks behind every corner and the really smart money is the cautious money, purportedly.

By contrast, it’s those trajectories that always make me reply, whenever I’m asked my opinion about global stock markets: 'I’m a raging bull!'

This is not because I suffer from the delusion that I can predict the future. And, I admit, in part I say it because I like to tease our clients, who have been conditioned to expect measured equivocation from their fund managers. 

But it is also because I believe the odds in investment are very much in your favour if you adopt a positive outlook. Betting against the bull market in the FTSE All-Share Index, a bull market that began in 1962 and is still running, is betting against the trend and in most circumstances betting against the trend is a losing bet.

Now, I’ve been in the investment business for coming up for 40 years and I’ll admit I wasn’t always a perma-bull. For years I too thought it sounded mature and responsible to evince caution about near- and medium-term prospects. 

I had to teach myself to be bullish. But I promise you, as soon as I started looking on the bright side not only did my investment performance begin to improve, but I felt and looked younger too. 

Buffett, Fisher, Munger: the greats are all bulls

Let’s face it – bearishness is the natural province of crabby old people.  All the great investors – Buffett, Fisher, Munger, Templeton – stayed structural bulls and (have) reached grand old ages. Not only were they intellectually correct to be bullish – as history and their track records amply confirm – but they were emotionally smart too.

Here are two great quotes to ponder in the context of my comments.  First from Nobel-prize winning psychologist Daniel Kahneman:  'Optimism is normal, but some fortunate people are more optimistic than the rest of us. If you were allowed one wish for your child seriously consider wishing him/her optimism.'

Then, this nearly 200-year old question from the great historian, Thomas Babington Macaulay. 'By what principle is it that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?' That question is as relevant in 2018 as it was in 1830.

Citywire AA-rated Nick Train is the joint founder of the Lindsell Train fund group. He runs the Lindsell Train UK Equity and Global Equity funds and the Finsbury Growth & Income (FGT ) and Lindsell Train (LTI ) investment trusts.

9 comments so far. Why not have your say?

john barker

Mar 28, 2018 at 17:00

An excellent article, easy to read, and clearly indicating why Train's funds/trusts perform so well: global brands, well managed, high conviction, low turnover , etc. He is 'bullish' about the companies he selects, particularly in the 'for ever' consumer sector.

You could argue a similar case with Scottish Mortgage, with the variance of 'tech disruptors' being their equivalent sector of choice.

For years, I have kept to the mantra of 'diversify' -- as it appears the whole investment industry is urging us to have some in bonds, this in property, that in commodities; and so it goes on. I am starting to question this logic. It is time consuming to monitor the changing landscape, and can be costly (why are most 'diversified' options so expensive?). Similarly, I can't get too excited when an 'advisor' informs us that Cambodia or Bangladesh are the next sure bet; even if that adds some diversification.

The nominal £100k pot, shared equally between Train, Anderson -and maybe Smith - would be hard to beat I think.

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Mar 28, 2018 at 17:34

You tend find that winners are optimistic - no doubt they feel it is worth taking risks and making things happen. By contrast the doom & gloom brigade are the opposite - I've heard people predicting a bear market since 2015. Listening to them would have been very expensive. I've come across numerous people who've been sitting on cash since 2012, even selling their properties, because the great crash is imminent.

Well more fool them especially as central banks have been waging a sustained war against cash since the financial crisis.

And even if a bear market is around the corner, which is quite possible, great companies like Unilever and Diageo will get through it as they have many times in the past. In fact it will be a good buying opportunity.

On that I completely agree with Nick Train who has the track record to back his perma-optimism.

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The Old Man

Mar 28, 2018 at 17:36

My only caveat would be don't forget the importance of pound cost averaging. The poor sole who put all his money in the UK blue chips at the end of December 1999 when the FTSE was flirting with 7000 would still be a poor sole today!

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Mar 28, 2018 at 17:51

Sorry Old Man, but your statement is flawed as it ignores the dividend income which would have been equivalent to about 3% per year. Total return (approx) of FTSE 100 without dividend reinvestment would have been about 3%. If dividends were reinvested your money would have doubled. Assume you had invested £100K in December 1999 and received the dividends without reinvesting and you would still have roughly £100k capital, but you'd have received about £50k in dividends! Hardly a poor soul.

Feel free to check my maths - it may be wrong.

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Mar 28, 2018 at 21:17

Macaulay still relevant in 2018? What about 1918? In the Trenches of the Somme, they chanted little else.

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Tom Mozy

Mar 28, 2018 at 23:46

All aboard the lindsell train! chooo chooo

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Mar 29, 2018 at 09:27

Interesting that Train uses the word 'teach'. But my sentiments entirely. I say google 'risk attitude', 'risk profiling' and do the tests. Don't accept the result but try to improve.

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The Old Man

Mar 29, 2018 at 20:20

Eyeboy you are right of course to include dividends but 50% growth in almost 20 years is grim performance in my book.

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Apr 01, 2018 at 10:30

Brilliant Nick

Will someone please forward a copy of this to Kier Starmer

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