Over a long career spanning almost 40 years, British fund manager Nick Train has seen more than one crisis come and go. But even a seasoned investor like Nick, who heads Finsbury Growth and Income, says that the challenges posed by the current COVID-19 crisis are as extraordinary as any he’s witnessed.
His view of the economic side of the crisis is that its key characteristic is volatility, and therefore its unpredictability.
“We know enough to know that we don’t know” is what he told his shareholders in a recent letter. What he means is that, although stocks have rebounded well from the lows of March, the global economic impact of the coronavirus crisis cannot yet be predicted – and it’s far from over.
Nick’s investment strategy solution to this is to focus on ‘survivability’, i.e. the resilience of companies to weather financial storms.
“We have always thought that other investors underestimate the value of ‘survivability’ in a company,” he writes. “For us, it is the start point in our investment process.”
Another important question Nick asks of potential investments is whether or not a business is still going to be around in a decade’s time. He says it’s surprising how many times the answer could be ‘no’ to that question, even in ‘normal’ business times.
That’s why Finsbury is fully invested, even though its portfolio is relatively narrow, made up of just 24 companies.
Finsbury’s focus on what Nick calls ‘excellent’ companies means he looks for those with a robust business model and strong finances. Revenue – particularly subscription income – is also a valuable trait from Finsbury’s point of view, as is the possession of top-quality products with a great brand image that people buy in all economic circumstances: think Diageo’s Guinness or Mondelez-owned Cadbury’s.
So businesses may well suffer, and they may cut dividends, but if you invest in a business that’s sufficiently robust to survive a bumpy ride – especially at a cheap price – your investment will, eventually, thrive. Especially if, as Nick predicts, there’s a ‘burst of hedonism’ on the far side of the coronavirus crisis.