What sets the world’s best investors apart?
Great intelligence? Patience? A bit of luck perhaps? All three probably play their part.
However, I believe there’s another major reason why the most successful investors can deliver exceptional returns year after year.
They all use simple, common-sense investment philosophies. In fact, they’re so surprisingly simple, almost any ISA investor could use them.
Below our experts highlight their favourite quotes from three titans of the investment world as well as offering investment ideas for this year’s ISA. Please remember, the value of investments can rise and fall so you could get back less than you invest.
If you want to have a better performance than the crowd, you must do things differently from the crowd.
Sir John Templeton
Known for his contrarian streak, Sir John Templeton’s investment philosophy is simple, but often forgotten. To achieve different – and preferably better – performance, you must do something others don’t or can’t.
The Lindsell Train Global Equity Fund, managed by Nick Train and Michael Lindsell, is a great example of this approach in action.
They invest with conviction in around 30 companies. This means each investment has a significant impact on the fund’s performance. We like this approach as it means the fund can outperform the wider market if the managers make the right decisions, though it also brings the risk of underperformance should they get it wrong.
Unlike many of its peers, the fund focuses on a narrow range of sectors. Nick Train and Michael Lindsell like companies with exceptional brands, which naturally leads them to global consumer goods businesses like Unilever and Diageo. In fact they are so keen on the sector they have invested almost half the fund there.
Every day 160m Unilever products are sold across 170 countries. The brands include PG Tips tea, Dove soap, and Persil washing powder. Demand for consumer brands should be supported by economic growth in emerging markets, where both populations and incomes are growing rapidly.
The Lindsell Train Global Equity Fund, is an offshore fund so investors are not normally entitled to compensation through the UK Financial Services Compensation Scheme.
Time is on your side when you invest in superior companies.
Thinking long term is easier said than done when it comes to investing.
Ups and downs are part and parcel of investing in the stock market, yet severe market setbacks can test the resolve of even the most experienced investor.
Peter Lynch, a highly successful investor in the 1980s, says investors can afford to be patient, providing they invest in the very best companies. Great companies can increase their earnings over decades, if not centuries.
Shorter-term dips in the share price are inevitable, but the strongest companies are well-positioned to survive and thrive, regardless of what is happening in the wider economy.
The Asian equities team at Stewart Investors (formerly First State) are truly long-term investors. They’ve invested in some companies for more than 20 years. In running their Stewart Investors Asia Pacific Leaders Fund, they seek high-quality companies with strong balance sheets and robust cash flows, run by trustworthy management teams.
It’s these companies they believe will endure for the long haul.
They only invest when they feel share prices are lower than a company’s true worth, with the intention of becoming long-term shareholders. For them, history plays a key part in assessing the quality of a company and they focus on those that have demonstrated their success over a prolonged period. We think this is a sensible approach in what is a higher-risk area.
Our favourite holding period is forever.
There are many reasons why they call Warren Buffett the Oracle of Omaha.
With a fortune of more than $78bn, he has made many great investing calls over his decades of investing.
Keeping things simple is one of the keys to his success. So simple in fact, that he aims to halve the number of decisions required by ruling out anything he anticipates ever selling.
Choosing a share you don’t expect to sell means picking an investment that has some long-term trends behind it. A good example is the UK’s ageing population.
With life expectancies much higher than even ten years ago, the country is faced with funding a lengthening retirement for a substantial, and growing, sector of society. In fact, the Office for National Statistics projects the cost of the state pension will double over the next 20 years. This trend plays nicely into the hands of groups such as Legal & General.
To try and solve the perennial retirement problem, and take some of the burden off the state, the government introduced auto-enrolment. An extra £17bn of new money is expected to flow into workplace pensions by 2019/20, and L&G has a big share of that market.
L&G also has a big slice of the growing passive investment market. Here, revenues and thus profits are linked to the value of assets under management. We believe exposure to the stock market should be a long-term positive, although of course there will be some bumps in the road as and when the market misbehaves.
For those prepared to play the long game, the prospective yield of 6.2% is attractive in the here-and-now, although please bear in mind that yields are variable and not a reliable indicator of future income.
The Lindsell Train Global Equity Fund invests in Hargreaves Lansdown plc shares.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.