Shares to buy, hold and sell: Nick Train
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
BUY: GREENE KING
"One of my most recent ideas is a regional brewer, Greene King. It combines a collection of several thousand (mostly freehold) pubs with a significant brewing division, which produces popular real ales such as Greene King IPA and Old Speckled Hen.
"We're buying shares for two reasons: the first is a long-term strategic one. The brewer offers fantastic protection against inflation because it owns a lot of good-quality property.
"Greene King has built up its estate of pubs over generations, since the 18th century. Some are in fantastic locations, and are places where people have been meeting for a drink and a chat for years, and where their children's children continue to go.
"A further protection against inflation is the fact that people will go to pubs in most economic environments - it takes a lot to persuade them to stop.
"The second reason we are buying Greene King shares is more tactical and short term. Over the past three or four years, its price has fallen significantly as this type of company has been out of favour. And although it's not a pub company as such, its share price has fallen in sympathy with the problems in the rest of the sector.
"This has given us a good opportunity to start buying its shares. Traditional pub companies have suffered from too much debt, but the regional brewers have come through the recession in a lot better shape.
"By the standards of the industry, our approach is unusually long term and strategic: our turnover is around 7% a year. When we build up a holding, we hope to have it for about another 10 years. With that time horizon in mind, this is a good time to be buying Greene King."
"Media group Pearson has been one of our most interesting long-term investments. Internet companies are changing their parent businesses for the better, and a multi-year bull market appears to be already underway in such companies.
"The internet boom of 1999/2000 ended in a horrible bust, but 10 years on we believe this area could be very exciting.
"It has taken the past decade for companies to invest in new technologies and use them to enhance their businesses. But there still aren't that many quoted companies that give access to credible internet stories; Pearson is one that does.
"The company is at the forefront of a transformation in education as teaching shifts towards online delivery. A substantial chunk of Pearson's earnings come from digital sources, and education accounts for around 85% of its business. Its growth rates and profitability are picking up all the time.
"We don't use management as an information source - they can't make us privy to any information that's not available to all investors. However, it's important to watch what they do and whether they do what they say. Do they get payback on their investment?
"Chief executive Marjorie Scardino has done a good job over the past 10 years; she has been shifting the business to faster-growing areas. We're very happy with this as a long-term hold."
SELL: UK BANKS
"We are chastened investors in bank shares; we've had to fundamentally rethink our attitude. Five to six years ago, we had exposure to the sector, but from early 2008 onwards we've been sellers.
"Right now, investing in banking shares is difficult: the regulatory scrutiny is so high, it's difficult to know in what form banks will be allowed to exist in the future. Banking is likely to emerge as a very different sector.
"Under normal conditions, the current environment would be a fantastic one for banks: with short-term rates effectively zero and banks lending at 5%, margins and profits ought to be absolutely exploding. But these aren't normal conditions: there are too many other things going on.
"It takes a lot for us to sell out of things completely. We are long-term holders, so we only tend to sell if we believe a company is going awry. We do think about valuations, but in our experience, companies with strong business fundamentals move up in value in most circumstances.
"Of course, we expect some of our companies to fall back at certain times. If companies are highly valued, we don't add more when we get cash flows into the funds, but instead focus on things that are cheaper."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Permanent and absolute ownership and tenure of a property (residential or commercial) and/or land with freedom to dispose of it at will but with no time limit as to how long the property/land can be held (in perpetuity). Freehold is the opposite of leasehold.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
A bull market describes a market where the prevailing trend is upward moving or “bullish”. This is a prolonged period in which investment prices rise faster than their historical average. Bull markets are characterised by optimism, investor confidence and expectations that strong results will continue. Bull markets can happen as a result of an economic recovery, an economic boom, or investor irrationality. It is the opposite of a bear market.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.