What Would Nick Train Do?

Editor's Views: Why selling your winners is a temptation you need to resist, how to position for a Brexit bounce, and why pets mean profits

Holly Black 27 November, 2020 | 10:24AM
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“Run your winners” is excellent advice but, as with so many things in investing, easier said than done. That’s what fund manager Nick Train is doing this year, but I guess he does have slightly more experience than me.

Yes, this week we heard an update from the veteran investor about the importance of sticking with your stocks and staying true to your investment philosophy even during the most volatile of periods.

The decision of how long to keep running a winner is a delightful problem for any investor. Ultimately it means deciding how much longer your already successful fund or stock can keep on rising.

This is a dilemma I’ve faced three times since I started investing in 2013. Three times I’ve owned funds which have more than doubled my money and have had to decide what to do about it (again, I reiterate, it’s a delightful problem to have).

As I’ve written previously, I only check my own portfolio a few times a year so each time this has happened it’s come as something as a shock. My first reaction each time has been: SELL. Faced with a successful investment I seem to naturally assume it’s a fluke, it can’t continue and it’s time to sell up and run for the hills. I can confirm I have never actually done this.

The first time it happened was with a tech fund, and I did end up entirely offloading the holding over a period of three months, figuring that the rally just couldn’t go on. Reader, I bought back into the fund a year later and it is still performing well. What did that teach me? Not to get spooked out of my own conviction – I still believed in the fund, the theme and the manager, but I let fear get the better of me.

In the two other instances I have taken profits and reduced the holding back down to its original proportion of my portfolio, putting the proceeds into other funds. Both of those funds – along with the tech fund – remain in my stocks and shares Isa. I am running my winners. And I am still battling the uneasy suspicion that it could all go belly-up at any given moment.

That’s the thing they don’t tell you about investing: it can cause you disquiet even when you’re doing well. How do I deal with that? I ignore the numbers and the market noise and I ask myself two simple questions: has anything actually fundamentally changed, and do I still have faith in this fund?

Remember Brexit?

With the focus on Covid-19 and the hunt for a vaccine, you might almost have forgotten that the Brexit deadline is almost upon us. At the end of the year, Britain will officially leave the EU and that’s bound to have an impact on our lives as well as our investment portfolios.

So, I was interested to hear this week how professional investors are preparing for the event. The overarching feeling seems to be one of optimism. Stock markets, we know, do not do well with uncertainty and the Brexit cloud has been hanging over the UK and subsequently the FTSE since the vote in 2016. After four-and-a-half years the feeling seems to be that an end to all of the uncertainty, whatever that end looks like, will let the stock market breathe a much-needed sigh of relief. It might even spark a rally and, dare I say it, it could finally push some of those unloved value stocks back into favour.

Does that mean you should make any changes? No, but it might be time for a check-in on your portfolio. Make sure you're not over- or under-exposed to your home market, check there's some downside protection built in, and ensure you're spread across different regions and assets. Now log out and go and have a mince pie - it's never too early. 

Puppy Love = Profits

One of my of few investment philosophies is to invest in what you know. As the proud owner of an energetic little puppy, it’s no surprise that Pets at Home (PETS) has recently come on to my radar. And in these dreary weeks of lockdown I can tell you that Pets at Home is the only shop I have had to queue to get in to. It is also the only store I visit more than once a week.

And it would appear I’m not alone: in a year when the UK economy is expected to shrink 11.5%, Pets at Home this week reported revenue growth of 5.3% and an increase of 22% in its subscription customers. Year to date, the firm’s shares are up from 287p to 400p. Not only has the firm benefited from being classed as an “essential service” enabling it to keep its doors open through lockdown, but it has been a major beneficiary of the shift to homeworking, which has allowed many families to finally get the furry friend they had always wanted but which previously hadn’t fit in to their lifestyle.

Can Pets at Home keep its profits growing? Like shopping online and remote working, I suspect this may be one of those behaviour changes that’s here to stay. My growing pup definitely needs a ready supply of treats if we’re ever going to master “stay”.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor, Morningstar.co.uk


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