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Train sorry for 'stubbornness and stupidity' on Pearson

Finsbury Growth & Income manager Nick Train has apologised for losses made on his investment in Pearson, whose shares have halved.

Train sorry for 'stubbornness and stupidity' on Pearson

Finsbury Growth & Income (FGT ) manager Nick Train has apologised to shareholders in the investment trust for losses made on his investment in educational publisher Pearson (PSON).

Shares in Pearson only dropped out of the trust's top 10 holdings only after a near-halving of the share price since its most recent peak in March last year.

The company, which sold the Financial Times last year, has warned that lower enrolments at some colleges in the US would hit profits, and some analysts have warned its dividend could come under threat unless it sells off more assets. Last October Train urged the company to consider a cut to shareholder pay outs to conserve cash.

The collapse in Pearson's shares has marred an otherwise creditable year for Finsbury, whose shares have broadly traded sideways over the last 12 months, compared to losses for both the market and most rival equity income trusts.

Speaking at the trust's annual general meeting, Train said he wanted to apologise to shareholders for the losses on Pearson, which he said were 'purely the result of my stubbornness and stupidity'.

'Perilously close' to selling

He said he had come 'perilously close' to selling the stock, a rare move for Train who runs a concentrated portfolio with long holding periods, selling companies as infrequently as he buys them.

'The sell discipline is it's best never to sell. We've got lower and lower confidence in our ability to successfully sell,' he said. 'We try and do it as little as we can.'

'We'll sell when we think the valuation is absurdly high or we absolutely lose confidence in the calibre of the franchise or the capital allocation of the board.'

While the latter condition was close to being met with Pearson, Train is sticking with the stock in the hope of a return to growth through investment in its digital operations. 'I hope to return to this meeting next year with a happier story to tell,' he said.

In line with his investment philosophy that there is no such thing as a 'hold' stock, only 'buys' and 'sells', Train has been adding to his stake in Pearson.

'For good or for ill, over the last six months we have continued to add to Pearson,' he said. 'We don't think Pearson on our analysis is a "sell".'

Unsurprisingly, Train has not been cowed by the slump in global stock markets. The Citywire AAA-rated manager took a decision 20 years ago 'to be always bullish' and has not relented from that stance.

'In the light of the difficult conditions over the last six months, we have responded to those conditions as a buying opportunity,' he said.

Train referred to investment guru Ken Fisher, who cites statistics showing the US stock market has risen on 55% of all trading days, 65% of all months and 73% of all years since 1928.

'Those are attractive odds in our opinion. We don't want to bet against it,' said Train. 'What a bad bet it is to be pessimistic about the markets.'

Takeovers boost confidence

Train also finds support for his bullish stance in the level of takeovers, which hit an all-time high of $4.3 trillion last year, and is progressing at the same pace this year.

He cited the Sainsbury's (SBRYdeal to buy Home Retail (HOME) at a price around 60% higher than the level the shares were trading ahead of the bid. 'We say follow what companies are saying,' he said.

Likewise the Warren Buffett-led takeover of Kraft, one of Finsbury's holdings, by Heinz. That $40 billion deal valued Kraft at 3.5 times sales, well ahead of the 2.3 times valuation of another of Train's consumer staples stocks, Mondelez (MDLZ.O). 

Despite not investing in a new UK name since 2008, when he bought Burberry (BRBY), Train is not ready to turn Finsbury into a global trust. 'I'm not sure I want that - I've been running UK equity money since 1984,' he said.

He is approaching the maximum amount of overseas stocks the trust is allowed to hold, at 20%, with last year's purchase of Remy Cointreau (RCOP.PA), the first new buy in four years, adding to non-UK exposure.

'Given our investment approach, we have not unearthed many new ideas in the UK stock market,' he said. 'If there is a new non-UK idea, that will have to be funded out of that existing 20%.'

7 comments so far. Why not have your say?

Keith Cobby

Feb 04, 2016 at 17:48

We all make mistakes. There is so much to like in his investment philosophy and I particularly agree with his buy/sell approach. I take the same view with the investment companies/trusts and sell 'holds'. In this new investment age with static markets you need to have higher convictions and eggs in fewer baskets.

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Roger Lawson

Feb 04, 2016 at 18:00

Have just written a similar report on this AGM for ShareSoc. I think the above report misses out one of the best quotations from Nick Train: "You don't need a constant stream of hot new ideas to generate good returns - you just need to be holding good old ideas". Another good one was: "someone has said investors fear $20 oil, but I say 'come on' - it's equivalent to a $3 trillion tax cut - this will sooner or later power growth".

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Wayne Hutchinson

Feb 04, 2016 at 19:24

I think Pearson will eventually come good - he should have stuck with it. BTW that face fungus does him no favours: puts 10 years on him!

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John Bowers

Feb 04, 2016 at 19:57

He has stuck with it. He's been buying more!

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Feb 06, 2016 at 08:48

I think Nick Train is very good, and Finsbury has done well, but I really wonder about continuing to buy Pearson when it has lost FGIT so much money. Personally I think Pearsons is a dog and he will regret buying more.

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Feb 07, 2016 at 11:42

He's made me 6X my investment plus a great dividend stream on mu LTIT shares, I can forgive the odd mistake!

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mark sp

Feb 08, 2016 at 08:35

Pearson is interesting. The issues relate to a 2 year reduction in enrolments because of peculiarities in the demographics. after which the student population starts to rise again. True that Pearson may be hit by competition or some black swan but the current enrollmentent drop off can be explained by the number of people going through the system.

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