Guernsey Press

10 Years On: Looking to the future

AFTER the event everything becomes clear, but beforehand things are never quite as straightforward. In early August 2018, the technology company Apple’s shares were the first US publicly listed company to reach the historic level of $1 trillion market capitalisation. So a $1,000 investment in Apple back in July 2008 would have been worth more than $9,400 10 years later.

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Derek Beatty, Julius Baer. (22517651)

Apple even managed to beat the leading e-commerce behemoth Amazon to the $1 trillion mark. If one had invested in Amazon over the 10 years to August 2018, your $1,000 would be worth a staggering $23,300. A sterling investor would also have benefited from a rise in the US dollar over this period.

Making over 20 times your money in an equity over 10 years is a remarkable result – few would have forecasted this during the depths of the global financial crisis. Amazon’s pre-eminent rise from an online bookstore back in 1994 to the largest internet retailer in the world by revenue and market capitalisation has inexorably assisted in changing the behaviour of consumers forever and eviscerating the high street.

Finding the next Amazon is no easy feat, therefore taking careful steps before investing one’s spare cash is important. One of the most important rules of investment is to diversify, as accurately predicting the future is impossible and it makes sense to not have all one’s eggs in one basket.

Over the last 10 years many high profile bankruptcies have taken place. For example the 168-year-old bank, Lehman Brothers, filed for bankruptcy back in 2008, while more recently Toys ‘R’ Us closed their doors after 70 years of trading. So, choosing a number of stocks makes more sense than one single stock.

It is easy and relatively cheap to buy a broad collection of stocks through either an exchange traded fund or an actively managed mutual fund. This spreads the risk over a number of stocks and provides broad exposure to an equity market rather than one or two single names.

If you do choose to invest in some individual shares, it is most important to invest in companies and businesses you understand. Over a billion iPhones have been sold since the first generation iPhone was released back in 2007. In addition, once you are locked into Apple’s ecosystem with your photos stored on the iCloud, your music on iTunes and all those iOS apps you have purchased, it becomes very difficult for customers to break away and start over. This business model is straightforward, clear and intuitive. Investing in a smaller company with limited public information in a distant land can present enormous extra challenges and risks.

Try and avoid following the herd or chasing the latest fad. It is part of human nature to copy the actions of those around you and to follow the group. Today’s winners are unlikely to be the winners in 10 years’ time. One of the most difficult things for an investor is to buy when everyone is pessimistic and sell when everyone is optimistic. This investment strategy can deliver strong investment returns if one is patient and is truly invested for the long term.

Stocks and shares do not go up in a straight line; an intrepid investor remains calm and assesses all available information when their chosen shares have fallen. Resisting the temptation to sell out of a stock altogether and buying a stock on weakness may be prudent and deliver long-term rewards.

Taking the Apple example again, during the 10-year period Apple has fallen by a large margin on three occasions; 2008, 2012 and 2015. A patient investor would have been rewarded as the stock eventually recovered and reached new highs. A simple buy and hold strategy, assuming the correct analysis has taken place at the outset, can be wise.

For the Guernsey Press finance review back in 2006, Julius Baer wrote about gold and over the last 10 years a sterling investor was rewarded for holding the shiny metal as it has risen over 100%. Today, we do not have any gold within our portfolios.

Elsewhere, the UK government bonds, FTSE All Share and global equities have risen 75%, 122% and 192% respectively. The FTSE UK Private Investor Balanced index, which represents a mixture of assets, has delivered 118%. In a low interest rate environment, sterling cash has only risen 6% and with UK inflation rising 30% the real spending power of those with cash in the bank has been significantly eroded.

So, despite the global financial crisis occurring at the beginning of our 10-year period and some further bumps along the way, it has been a good environment for investors, particularly those holding a well-managed portfolio.

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