Train, who has more than 30 years’ experience in the industry, says that investing in equities is all about making money from the "long-term corporate power of companies", which cannot be realised unless a long-term approach is taken. This, he says, is why he has been putting cash to work across all of his top-rated portfolios, including the five-crown rated Finsbury Growth & Income trust.
"The stock market is an emotional entity that is prone to over-exaggeration, but if you concentrate on long-term goals, then a day of sharp decline doesn’t matter too much," he said.
"What I feel is that there can be a fundamental category error when investing in equities."
"When you invest in equities, you are investing in the long-term corporate power of companies – so if you trade in and out of these assets regularly, you are actually making a bit of a mismatch," he added.
He says that his approach to investing could well be very different if he was buying and selling other financial assets, but he urges equity investors not to panic over newspaper headlines.
"I am not saying that headlines don’t affect investors who concentrate on government bonds, cash or currencies, as macroeconomics are relevant there. But how relevant are macroeconomics to the long-term earnings of a company like Unilever?"
"If it was my job to invest in currencies or government bonds, then I would be laser-focused on macro issues, but when you are investing in equities, it can mean that you get yourself in a kerfuffle," he added.
Although it may be tempting to retreat into cash when economic news takes a turn for the worse, he says long-term investors are best off being patient and waiting for the tide to turn – which inevitably it will.
"I recently read two lines of light verse from the US comic versifier Ogden Nash [originally said by the American poet Richard Armour], which I think summarises long-term investing very well," said Train.
"Shake and shake the ketchup bottle, none’ll come, then a lot’ll."
"Obviously it is a very apt description for getting out ketchup, but it is also a good analogy about getting returns from long-term equity investing. You may have to wait a long time and you cannot predict when they will come – but they will."
"However, if you try to trade too much, you may miss the splurge, so to speak," he added.
His thoughts on long-term investing are very timely given the market volatility over recent weeks.
Having broken 6,800 in May, the FTSE has fallen sharply in light of the announcement that the US’s quantitative easing programme will be brought to an end by 2014. At the time of writing, the index has plunged to 6,077.
After a strong start to the year, the returns made by the majority of UK equity funds have now been wiped out.
Performance of index year-to-date
Source: FE Analytics
However, Train says he revels in volatility and has used the sell-off to add to his existing holdings, since the pull-back in the market has had no impact on the fundamentals driving his companies.
"On Thursday last week, I went through every single client account to see how much cash there was and then I invested the bulk of it," he said.
"Now I am not saying I was being a genius by holding cash in anticipation of a set-back, as we have been pretty much fully invested. However, in a day like that you want to be buying as much as possible."
The FTSE 100 was down more than 3 per cent on Thursday last week.
Train continued: "There is no fixed, firm or guaranteed correct action to take with something as unpredictable as capital markets. However, you have to follow what history suggests and try to distinguish what has been a winning strategy and which one has been a losing strategy."
"A losing strategy has usually been buying things as they are going up and selling them when they have gone down. I’m not saying it is always right and I appreciate it is psychologically difficult, but you have to be patient."
"I know it may sound complacent but I have been doing this for thirty years now and there have been a lot of days like we saw last week," he added.
FE data shows that Train’s approach has certainly worked for his investors over the years.
He began managing the five crown-rated Finsbury Growth & Income Trust in 2000.
Over 10 years it is the best-performing portfolio in the IT UK Growth & Income sector, with returns of 313.4 per cent, beating its benchmark – the FTSE All Share – by 187.49 percentage points.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
The closed-ended fund has also outperformed both its benchmark and its competitors over one, three and five years.
It is the same story with Train’s CF Lindsell Train UK Equity fund – an open-ended vehicle – which has also been one of the stand-out performers in the IMA UK All Companies sector in recent years.
The £690m fund is one of only two in its sector to have been a top-quartile performer in each of the last five calendar years – the other being Liontrust Special Situations, which also takes on a long-term, bottom-up approach.
Train's Finsbury Growth & Income Trust is a high-conviction portfolio of just 26 holdings – a strategy Train uses across all of his funds. Train has more than 9 per cent of his £363m trust in both Unilever and Diageo, for example.
The trust is currently yielding 2.2 per cent and is 6 per cent geared. It is trading on a 0.5 per cent discount to its NAV and has ongoing charges of 0.94 per cent.
