Equity fund manager Nick Train said the biggest risk to the performance of his funds is the internet, which he said is destroying reliable business models “frighteningly quickly”.
“Understanding whether the internet is the friend or the enemy of the companies we invest in is the single most important aspect of our job at the moment,” he said, describing this as “daunting”.
“You can see the incredible increase of value for companies that have a successful digital strategy, but you can also see the scary collapse in value of companies that find the internet has taken their business away from them.”
For example, he pointed to the media industry, and specifically the Daily Mail, saying: “We own the company, so in the end I suppose we think the online property will turn out to be even more valuable than the newspaper, but it’s a bet.”
Mr Train, who manages the Lindsell Train’s £3bn UK Equity fund, admitted it was becoming harder to find companies that he is completely sure about.
“With each passing year the ramifications of digital seem more and more universal, and industries and businesses that we never thought could be impacted are being impacted.”
The Lindsell Train co-founder, who also runs the £2.1bn Lindsell Train Global Equity Fund and the £919m Finsbury Growth & Income trust, said he expects global stock markets to be much higher in 10 years time compared to where they are now.
“That’s the good news,” he said, adding however the bad news is this will lead to the emergence of companies and even industries that have “scarcely been heard of”.
He said the problem is most people won’t recognise these emerging companies until the companies have created billions of dollars of value already.
“The risk is you get locked into holding mature or even dying investments.”
He pointed to Amazon, which he said has created “unbelievable” value for its owners over the years it has been a quoted company.
“But every step of the way there have been naysayers and sceptics that have said Amazon is grossly overvalued, will never make a penny of profit, is not run as a conventional business, and therefore cannot possibly succeed.
“Many US investment managers have had an extremely tough time because they have refused to invest in Amazon.”
Mr Train, who has been named as a manager who can reliably deliver returns, also suggested there might be an “obscure subset” within the biotech industry that will be trillions of dollars in quoted market value in 10 years time which is “nothing today”.
“I wouldn’t back me finding that obscure subset in the biotech industry, and that’s the challenge.”
He also said he was not searching for those emerging tech companies, adding: “You have got to know your limitations.”
“Backing new technology companies is a loser’s game; for every one that turns out to be the next Amazon global leader, there are 300 where you lose everything.”