Investment guru Warren Buffett famously said that the ideal length of time to hold an investment is ‘for ever’. It is a strategy which many professional investors are adopting as the FTSE 100 reaches new highs.
The idea is that if you can find an investment fund or company whose share price keeps growing year after year, then there should be little reason to sell or move your money elsewhere.
Holding investments for the long term can be rewarding and a cheaper way to invest. Each time you buy and sell shares it costs money, which eats into your returns. But if you only buy once, you minimise trading costs.
Helping hand: Investment guru Warren Buffett advised holding shares ‘for ever’
While investment funds levy a mix of ongoing charges, they will be lower if the manager is not buying and selling companies often. This is because they are not racking up trading costs.
Nick Train is manager of the successful Lindsell Train Global Equity fund. He is renowned for his buy and hold style of investing. He famously once went three years without investing in a new company. The fund’s most recent purchase, last summer, was to buy into financial services behemoth Hargreaves Lansdown.
Although some may argue it is his business to search out better investments, the results of his strategy are compelling. Over the past five years, a £1,000 investment would have more than doubled in value to £2,250.
By way of comparison, an equivalent investment in the average global fund would have grown to £1,610. Train says: ‘If you can find a company so reliable in its business performance that it carries on increasing its share price decade after decade then you would hold it forever, wouldn’t you? Some do just that, but they are rare.’
One example he likes is Young’s brewery, which operates more than 200 pubs around the country. Its shares have soared in value from 115p in 1995 to 1615p today.
Train says: ‘As long as you expect London to remain a growing city and you expect Londoners to carry on drinking alcoholic beverages, Young’s is a good company share to buy and hold.’
He has also owned shares in Irn-Bru maker AG Barr for 17 years – Irn-Bru is still the number one soft drink in Scotland.
Train says drinks brands make great investments because the cost of ingredients is low and consumer loyalty is high.
He adds: ‘AG Barr has recently cut the sugar content of Irn-Bru so there is no excuse not to keep supping the nectar. We will see what that does for the price of the shares over the next 17 years.’
Finding winning shares by yourself can be tricky but investors can back those fund managers such as Train who have a strong track record of being able to root them out.
Laith Khalaf is senior analyst at financial broker Hargreaves Lansdown. He says: ‘The best strategy for building your wealth is to get rich slowly by buying and holding investment funds over the long term.
Picking a fund manager who uses a buy and hold approach means their skill in picking long term winners benefits you directly.’
The most extreme example of this is an investment in the first ever investment trust, Foreign & Colonial, which launched 150 years ago in 1868. If you had put just £100 into the trust at launch you would now have an investment worth an incredible £12 million.
Tasty tip: Regular drinkers boost Young’s brewery success
While investing for 150 years is not realistic, backing an investment fund for ten, 20 or even 30 years is practical, particularly if you are investing into a pension for retirement. Investors should find an investment fund with a strong track record, with a manager whose style they like, invest and then leave their money alone for at least five years.
The longer you leave your money the greater the potential investment returns. Such an approach is not only cheaper but is usually effective because it means you are not tempted to change your investments at the worst time. Rob Pemberton is investment director at financial adviser HFM Columbus Partners in Weybridge, Surrey. He says: ‘The best advice when it comes to investing is to forget about the short-term and not get distracted by so-called “market noise”. This can cause you to chop and change and make poor decisions influenced by fear and greed, rather than sound logical analysis.’
Terry Smith is another fund manager renowned for rarely buying or selling shares. He says: ‘Our strategy is to invest in good companies, try not to overpay for the shares and then simply do nothing but hold.’
His £13 billion Fundsmith Equity fund only invests in 29 companies and 12 of these have not changed since the fund launched in 2010. They include Milkybar maker Nestlé, Guinness-brewer Diageo and toothpaste maker Colgate-Palmolive. Over the past five years, a £1,000 investment would have grown to £2,250.
Some investment trusts take the buy and hold approach to extreme. Bankers Investment Trust has owned shares in UK bank HSBC for a staggering 129 years.
The first set of annual accounts from the trust in 1889 show the bank’s shares listed as well as those of companies including Liebig’s Extract of Meat Co, which used to be the owner of Oxo cubes.
Investment trust Lowland has invested in Wiltshire-based pub company Wadworth since 1968. James Henderson, who manages the trust, says the value of the holding has increased 100 times not including dividend payments along the way.
Meanwhile, there are more than 20 companies in the JPMorgan American investment trust which have been in the portfolio for a decade or more, including tech giants Microsoft and Apple.
Manager Garrett Fish says: ‘Apple has been at the forefront of innovation over the past decade and disrupted an entire industry through the introduction of products such as the iPod and iPad.’