Nick Train was all fired up, speaking at the annual Frostrow Conference in London this week. He’s on the quest for 100-baggers. For the uninitiated, these are stocks that return your money 100-fold – otherwise known as every investor’s dream.
Train is well-famed for his “do nothing” approach; he has previously told how he spends his days reading in lieu of doing any actual trading. And most recently, he’s been reading about how taking profits is a fool’s errand. What is the point, he says, of taking profits and putting them into weaker performing stocks, when you could just keep running your winners and wait for that elusive 100-bagger?
Well, it’s a good point but one that flies in the face of the basic investment theory. I don’t want to argue with Nick Train, he’s an incredibly talented investor and the performance of Finsbury Growth & Income is so fantastic it has bewildered even him, but surely, it’s a simple fact that nothing can go up forever?
Investors are often told in times of volatility not to panic and sell their investments as the stock market plunges – they are only paper losses until you sell, is the argument. But isn’t the same also true of gains? If you don’t crystallise some of those profits they don’t really exist, do they? And if a tree falls in the woods and no-one’s around…
The Trouble With IPOs
The dire debut of Uber surely only proves the point of those fund managers who say the greatest gains are made before a company comes to the public markets.
Uber shares have started to recover some of their losses after a dismal first couple of day’s trading on the stock market, but the business has faced criticism this week with everything from a lack of profits to a lack of innovation being blamed for the poor performance.
But Uber is not alone in its first-day falls – such high-profile IPOs are bound to struggle under the weight of so much expectation. Anyone who panicked and sold should never have invested in the first place, and those who truly believe in the long-term potential of the business will have taken the opportunity to pick up shares at a discount.
But imagine if you could have invested five years ago. Uber came to market last week with a valuation of £91 billion – less than six years ago, a fund raising round put the value of the company at £3 billion. This is probably where investors such as Scottish Mortgage’s James Anderson sit back and say “I told you so”.
Negative Fees and Positive Results
Increased competition and greater transparency have helped fund fees fall significantly in recent years, but I never thought I’d hear of a fund that pays you to invest. That’s what US ETF company Salt Financial is offering with its latest product launch, however.
The move is undoubtedly very gimmicky – the company admits it struggled to attract assets to its first product so has come up with this strategy instead, waiving the 0.29% fee on the tracker until it reaches $100 million of assets under management, which I’m guessing it will do quite quickly.
While the move to low fees is undoubtedly a good thing, it’s important we don’t get too hung up on the difference of a few basis points. You can invest in the cheapest fund on the market, but if its performance is shoddy then you’re still out of pocket.
That said, I don’t believe fund groups should feel they can charge extortionate fees just because they’ve had a good run of performance. There’s a long way to go yet on fees and it’s an area the regulator is starting to look at more closely – but I think what most fund groups will find, is that investors don’t mind paying for their services as long as you tell them how much they’re paying and where the money is going.
