In this recent interview with Edison TV, Nick Train, co-founder of Lindsell Train discussed his successful buy and hold strategy that was influenced by Buffett, Munger, and Lynch, and focuses on ‘running your winners’. Here’s an excerpt from the interview:
I tried to do that 30 years ago, and demonstrated to my own satisfaction that it [timing] wasn’t my skill. I know how trite, and this is our fault, not your fault, how trite what you’ve just described as our investment approach sounds, identify great businesses and then hold them for very long periods of time. It’s so simplistic.
I’m going to add to it with another really simplistic, but I think a powerful piece of investment advice, which we do our best to adhere to, and that is the piece of investment advice that says run your winners. It’s obvious. History confirms it, that this shared crisis of outstanding businesses, great businesses do show a tendency to go up a lot over multiple decades. Of course there are counter exceptions, and of course there is a subjectivity in identifying what constitutes a great business, but when you see the potential rewards for, I don’t know, owning Unilever for 50 years. They’re extraordinary. Unilever’s share price, over 50 years, has gone up more than 100 fold. The company’s grown its dividend every year for over half a century.
The returns that you can earn from identifying a business with those sorts of sustainable longevity are very high indeed. You know what? Running your winners sounds so simple, but all of us, maybe even you yourselves, will recognize that it’s more of a challenge, both intellectually and maybe even more importantly, emotionally, it’s more of a challenge than you might think. There’s always the temptation to take some profit.
Unilever, believe me, look at the charts, unbelievable returns over multiple decades, but I can point multiple five year periods when Unilever’s share price did nothing, and what are you supposed to do when the shares of a great business do nothing for five years? The temptation is to sell. This is boring. I’m going to move onto the next idea. Maybe you get lucky, maybe your new idea is better than Unilever, but can you be sure?
All I know, and even this isn’t an internal observation, all I know is that over the 21st Century to date, running winners in strategically advantaged companies has been a hell of a lot more rewarding than averaging down into losers. Now that can change, of course it can change, but in the end, all anyone at Lindsell Train can do is say, “Here’s our investment approach. We’ve stuck to it. We propose to continue to stick to it. It’s up to you to decide whether it’s relevant for you, or you think it might be effective over the next period.” That’s what I’d say.
On the topic of Peter Lynch, Train adds:
“I’m not saying that’s not valid, but the big lesson for me from Pete Lynch was run your winners because they can go up more than your wildest dreams.”
You can watch the entire interview here:
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