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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.
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 (SBRY) deal 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%.'
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by Daniel Grote on Apr 26, 2017 at 11:17