Three great companies that will grow for decades
Professional investor Nick Train of the Finsbury Growth & Income Trust, explains his investment strategy, and picks three top quality companies to buy now.
Let’s agree the identity of a handful of great companies from around the world. I know there’s always room for debate about such qualitative matters and you and I might disagree about the qualities that constitute greatness.
But if I table these (all held in Lindsell Train portfolios): Diageo, Kao Corporation (Japan’s Unilever), Heineken, Walt Disney and Unilever itself, I think anyone – after due consideration of these companies’ histories and prospects – would agree they are all great businesses.
What is more – and this is important – if you’d produced the same list ten or even 20 years ago, they’d have been acknowledged as great businesses then too. They weren’t difficult to spot in 2000 or today.
It is also important to note that these “great” companies have been great investments over the last 20 years and longer. And when I say great, I mean that their share prices have often gone up many, many times over the decades. They have generally handsomely outpaced the local stockmarket indices they reside in. Take a look.
You would think then that investment was the simplest thing in the world. You just identify a few great businesses, buy their shares and then hold them forever. In fact, this is exactly the strategy we pursue for Finsbury Growth & Income Trust. This strategy is certainly neither original nor clever, but it has been effective for us over the best part of 20 years. Perhaps it will cease to be effective tomorrow – no one’s investment approach can be guaranteed to work in perpetuity – but we propose to stick to it.
Booze begets brand loyalty
We are wary of drawing firm conclusions about the long-term effects of the lockdown and virus. It is still too soon, raw and imponderable. But it seems not imprudent to make two observations. First, through the crisis consumers have remained loyal to beloved and trusted brands and perhaps no more so than with alcohol.
Diageo (LSE: DGE) owns Guinness, Johnnie Walker and Tanqueray. I can’t tell you what Diageo’s sales and profits will be for the next six months or six years. But I can tell you it is highly likely that those brands will still be enjoyed in 60 years’ time.
The same is likely to be true for Heineken (Amsterdam: HEIA) too. For a certain type of investor, us for example, you really don’t need to know very much more.
Next, the pace of technological change – already brisk – is accelerating. Some older great companies are being impaired by this process, while new great companies are emerging. In the UK, we continue to think RELX (LSE: REL), Reed Elsevier as was, is one of the best ways to participate in the changes we’re all experiencing.
The company provides crucial digital data and software services to the global insurance, legal and scientific communities. It is in fact one of the UK’s few great tech companies.