Welcome to 2022! In this video I look at some of the things you can be doing to ensure that you have a successful year with your portfolios and get the most from your investments.

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

A conversation remains stuck in my head from early 2020, when the terms ‘lockdown’ and ‘social distancing’ were largely unheard of. My meeting with a Chief Investment Officer was coming to an end. We were discussing Tesla, which at the time was finally being recognised by the market and thus being rewarded with massive share price growth. He leaned across the table and said, “tell me you have been selling your shares.” What struck me was not his belief that we should sell, rather that he appeared to hold it with such absolute certainty. His assertion wasn’t anything to do with the company itself, but rather the ingrained belief that when a share price goes up a lot, you should sell. This was common sense. To do different would be foolish, greedy and undisciplined.

It is a conventional wisdom that pervades much of the financial industry. As the old saying goes ‘it’s never wrong to take a profit’. There is some validity in this approach, hence why it pervades and endures. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. That loss – of foregone upside – is not captured in performance data, but perhaps it should be. On the other hand, if the stock in question continues to be held and goes in the other direction it will become a clear detractor in performance data and you should expect to be asked, if not chastised, about it. And so, from the investment manager’s point of view, perhaps it can be said that it is never wrong to take a profit.

But what, I hope you ask, about the client? For the client, equity investing is asymmetric, the upside of not selling is near unlimited, while the downside is naturally capped. Surely, for the client it can be very wrong to take a profit? This goes to the heart of why so much of investing is wrong. Sadly, as an industry, institutional money managers too seldom try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.

The realities of investment therefore are often very different from the dogma. At Baillie Gifford, we are fortunate to be informed by a range of thinkers from outside our industry that have no incentive to prop-up the myths of investment management. Instead, they deal in observable facts, not the self-serving mantras beloved by professional investment bodies. This note tries to share a few of their perspectives that have been crucial to how we invest and, in the process, demonstrate that it is often not just wrong to take a profit, but it can be the worst possible mistake.

PROFESSOR HENDRIK BESSEMBINDER

WHERE RETURNS ACTUALLY COME FROM

Let’s take Bessembinder’s paper Do Stocks Outperform US Treasury Bills? as our starting point. We have all been told the answer is yes because stocks carry significantly more risk, so, of course the factual answer is no. Nearly 60 per cent of global stocks over the past 28 years did not outperform one-month treasury bills.

Equity investing as a whole though is thankfully still worthwhile. This is because of a small number of superstar companies. Bessembinder notes that a mere 1 per cent of companies accounted for all of the global net wealth creation. The other 99 per cent of companies were, it turns out, largely a distraction to the task of making money for clients. The capital asset price model (CAPM) so beloved by the financial industry is therefore nonsense because the normal distribution of stock returns that underpins it is imaginary.

This should shake the very foundations of the investment industry. It provides not an opinion but a collection of facts as to where returns come from and what investors should focus on. The entire active management industry should be trying to identify these superstar companies since nothing else really matters. Investing is a game of extremes.

But, here lies the problem, it requires a vastly different mentality to that displayed by the financial industry today. It requires focus on the possibility of extreme upside, not the crippling fear of capped downside. This requires genuine imagination should there be any hope to grasp the potential of superstar companies. After all, it required imagination to see that Amazon could become more than an online bookseller or that Tesla could become more than a premium electric car company.

In addition to imagination, Bessembinder makes it clear that it is the long-term compounding of superstar companies’ share prices that matters. Investing thus requires patience. This comes in two forms. Firstly, patience when things go wrong because even for superstar companies, progress is rarely a straight line. Many of our most successful holdings have had drawdown periods of 40 per cent. NIO was at one point down 85 per cent. It is important to not allow volatility to bully you out of a superstar company. The second type of patience is when things are going well. After all, the point of superstar companies is that they can go up five-fold and then go up five-fold again. If you sell after the share price merely doubles, crow and take your profits, you undermine the whole point of identifying companies with extreme return potential in the first place.

Let’s take a practical example. In early 2000, the founder of SoftBank, Masayoshi Son, made what may have been the greatest investment in history. He invested $20m in a Chinese ecommerce company. Two decades later his remaining investment is worth in excess of $180bn. A wonderful example of an extreme return.

Bloomberg Pictures of the Year 2019: Extreme Business. Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp.

This is a well-known story and one I’ve been lucky enough to be told first-hand by Masayoshi Son. However, less well-known is the story of Goldman Sachs. Goldman invested in the same company a year before Son on far better terms. Shirley Lin, who worked for its private equity fund, had an agreement to invest $5m for a 50 per cent stake. Ultimately though, they opted to invest $3m. Five years later their stake was worth $22m, a seven-fold return. At this point, the decision was taken to sell under the guise it’s never wrong to take a profit. In many ways, this was a remarkably successful investment, until you realise that today those shares would be notionally worth more than $200bn before dilutions are taken into account.

It would seem Goldman Sachs got the identification, and perhaps even the imagination part, right. They spotted one of the greatest superstar companies of our era early on. Yet, when asked why Goldman Sachs sold, Shirley gives a depressing but predictable answer: “they wanted quicker results”. Though this example is extreme and straddles public and private ownership, the point is clear: in investing, it is often not only wrong to bank profits, it can be the worst mistake you make. Despite this, in almost every client meeting I am asked about our sell-discipline. No one has ever asked me about our hold-discipline, which is a shame, as the greater cost to clients’ returns comes from the inability to hold onto superstar companies when their returns are ticking upwards. Investment managers are usually very good at selling. This doesn’t mean the answer is never to sell but rather to take such decisions very, very carefully. To sell too early can be catastrophic and far more costly than holding on too long.

PROFESSOR BRIAN ARTHUR

INCREASING RETURNS TO SCALE

The notion that companies can even produce such extreme returns goes against much of economic theory which exhibits an overzealous equilibrium-mindset that likely has deep religious and spiritual roots. This mindset is the progenitor of a mindset of a different name common in finance, namely a belief in ‘reversion to mean’.

Bessembinder’s data falsifies the assumption that company returns quickly stabilise. Moreover, he shows when looking at nearly a century of US stock market returns the concentration of wealth creation is becoming yet more skewed towards a small number of companies. The returns are becoming extreme. The superstar companies are becoming more super.

This is particularly odd given that economics focuses on diminishing returns to scale. It takes the work of Professor Brian Arthur of the Santa Fe Institute, to understand that this concept is rooted in observing the returns to scale of the “bulk-processing, smokestack” industrial companies of the 19th century. He notes that western economies have shifted “from processing of resources to processing of information, from application of raw energy to application of ideas”. Far from diminishing returns, today’s knowledge-based companies tend to exhibit increasing returns to scale and so, in the digital era, reversion to the mean is even less common. Returns are yet more extreme.

Professor Brian Arthur. © Corbis Historical/Getty Images.

PROFESSOR MING ZENG

NETWORK COMPANIES UNLEASH UNIMAGINABLE SCALE

Brian Arthur came up with this early explanation of emerging economic reality on America’s west coast, while observing both Silicon Valley and the rise of Microsoft further north. However, as with most things today, if we wish to better understand the economic reality of tomorrow, we must look east. To help us here we have the academic Ming Zeng. He became Alibaba’s Chief Strategy Officer in 2006, a job he took to further his studies by giving him a ringside seat to history in the making.

For Ming, the greatest superstar companies of the future will be what he calls “smart businesses” harnessing network coordination and data intelligence. These organisations will look less like a company and more like a network. He notes:

The old, diversified conglomerate was like a complex machine of the old industrial age. It collapsed when it reached a certain complexity. But the future of business is more biological rather than mechanical… an ecological system grows and becomes more and more sophisticated, even more robust when it becomes richer and more diverse.

Network companies, such as Amazon, Lyft or MercadoLibre, coordinate millions of entrepreneurs, guiding them with data intelligence in real-time so both the network companies and entrepreneurs can adapt to conditions instantly in ways traditional companies could never have dreamt. This marries the benefits of enormous scale with rapid adaptability. Moreover, the larger these network companies become, the more data they have and thus the more intelligent and effective the network can become. If Ming is right, then it is logical to assume the importance of superstar companies will grow even further with the application of machine learning.

IMG

MARTIN VAN DEN BRINK

EXTENDING MOORE’S LAW

Despite the above, we must not forget that the prevalence of new superstar companies will be determined by the amount of economic and social change that takes place from here. Indeed, I would go further still and posit that the single greatest determinant of whether returns will swing from growth to value is whether the pace of change in the world increases or decreases. For it is change which creates new markets and disrupts old ones. It is change that fuels the rise of superstar companies.

We therefore need to believe the conditions for change will persist. To give us that conviction we have Moore’s law. The observation and projection made by Gordon Moore, the co-founder of Intel, that, for the same price computing power would double every 24 months. This projection has now become seen as a law, given its predictive power over the last 50 years. In doing so it has set the pace for the semi-conductor industry and thus for human progress.

What this means is that come the early 2030s computing power should be at least some 60x more powerful than today for the same cost. The implications of such a large increase are difficult to imagine. At the very least, the disruption should spread from industries like advertising and retail to those of even greater importance such as healthcare, finance, education, and many more.

Nevertheless, it would of course be wrong for us to have confidence in past patterns, however long and persisting, without due cause. Here we are very much helped by the insights of Martin van den Brink, ASML’s Chief Technology Officer, whose lithography machines have been largely responsible for extending Moore’s law in recent times. Van den Brink makes two points. First, that Moore’s law is older than we think. It dates back not 50 years but an entire century in all but name to when computing power was vacuum tube rather than transistor based. His second point, is even more significant and far reaching, because he believes ASML already has the technology roadmap in place to ensure Moore’s Law extends into the 2030s.

It therefore perplexes me why with the power and predictability of Moore’s law, our industry decides instead to focus far more on what interest rates or GDP growth rates mean for investing. Frankly, I think we would all be much better investors if we concentrated on the future implications of Moore’s law. A 60x increase in computing power will profoundly shape our world. The question we must grapple with is what this new world will look like.

MASSIVE OVER DIVERSIFICATION

If we follow the facts and focus on superstar companies as the only real creators of value in long-run equity returns, then it also follows that portfolios need to be constructed radically differently. Given superstar companies are by their definition very rare, this makes concentration a logical response.

The case for concentration is well made in several academic studies. Yeung et al (2012) looked at nearly 5,000 funds and found that the top ideas in these portfolios consistently outperformed the diversified funds from which they were derived. Similarly, Best Ideas by Cohen, Polk and Silli (2010) highlighted that the top 5 per cent of fund managers’ ideas are consistently the best performers across portfolios, a point that is well supported by our own experience. The authors provocatively argue that stocks added ostensibly for risk control reasons are not just a mistake but a cynical exercise in enabling investment managers to add assets well beyond their alpha-generating capabilities. Our guess at the motivation for fund managers to diversify is somewhat different, but hardly better. We think investment managers embrace adding stocks so they can diversify their own business risk from the inherent volatility that comes with stock picking.

This raises a key question for institutional portfolio construction. Whose risk are we really trying to diversify? It can only rationally be that of the investment manager. For whilst the investment manager may have a few portfolios at most, the client often has many. Indeed, I have yet to meet a client for whom our portfolio represents their entire equity allocation. The investment manager therefore benefits from the diversification within their portfolio, not the client. They already own many thousands of stocks. The real problem for the client is not lack of diversification, but radical over-diversification.

If we combine this with what we know from Bessembinder, the client has two means by which they might capture the tiny number of superstar companies that have the potential to be meaningful for long-term returns. Pay low fees to own the index and never miss out on superstar companies but have them heavily diluted. Or, attempt genuine concentrated stock picking of superstar companies that actually justifies active fees. The middle ground between those two options too often risks serving investment managers, not the clients, providing only the worst of both worlds – active fees for index-like returns.

CONCLUSION

Finally, we should return to our opening and that conversation back in early 2020. The progress of Tesla since then has shown that we were wrong to hold. We should have added substantially. Of course, this shows that one never can be certain about the future. It is only through the brilliance of minds such as those noted here that we can start to grasp what actions and approaches might be most advantageous for our clients. This goes for building relationships not just with academics and scientists but corporate visionaries as well. It was the chance to talk to that company’s CEO to hear the ambition and vision that made it clear, though not certain, that the possibility of extreme upside was there.

RISK FACTORS AND IMPORTANT INFORMATION

The views expressed in this article are those of Lawrence Burns and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in March 2021 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this article are for illustrative purposes only.

This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.

After all of the hype and excitement surrounding GameStop, silver and Ripple in the last few days I thought it would be interesting to discuss the differences between investing and gambling.

I am going to try to break it down into a few key areas of difference:

1. 1. Time. Investing tends to be for the long term because that is how long it takes to get the desired outcome. Look at a chart of the S&P 500 over 90(+) years and you can see that there have been sustained lows as well as highs but that, in time, returns have been positive. Gambling tends to be looking for quick wins ie a casino or a horse race don’t last long yet returns can be high. It is possible to make very big returns in a short time by buying a stock, however, equally, it is possible to make large losses too.
      

      Timeline of the S&P 500 Over 90+ Years

   2. Knowledge. The GameStop frenzy saw some people make a lot of money and, at the beginning, was portrayed as novices who had struck gold. In fact, some of the people making big returns there were not novices at all and knew exactly what they were doing. They went into the trade with knowledge of the system, knowledge of the market, knowledge of the reality behind a short and knowledge of when to pull out.
   3. Having a System. If you are buying stocks because you heard it was beneficial and all your friends do it then the chances are you don’t have a system. Investors tend to have a system that they use in order to achieve great results over time. For most investors this is using a system called ‘dollar cost averaging’ whereby money is dripped into the market at regular intervals – if you consider pension funds which most people contribute to on a monthly basis this would be a good example. Dollar cost averaging mathematically smoothes volatility over time by ensuring that you buy the average price of the market over the years.
   4. Emotion. Investing over time is likely to be deemed rather boring by most. Buying a well diversified basket of stocks either directly, through an ETF or through a fund or a mix of all with the intention of holding it for 30 years or more is not exactly thrilling. I try to make it more interesting for clients by dotting more interesting holdings around the edges however, in reality, it is what it is. Gambling, however, can give fantastic highs and lows. If you are chasing these emotional whirlwinds through the stock market then it is likely that you have used it as a tool to gamble – particularly if your view is short term, you have no system and your knowledge level is poor!

The below article appeared in The Financial Times last year following the rise of the markets from March to September and looks to discuss some of the differences between gambling and investing:

Some platforms promote investments that carry a considerably higher level of risk.

There’s no doubt that investing can be exciting. A quick win on the markets can make you feel buoyed up and hooked on finding the next opportunity. But there’s a fine line between investing and gambling and you need to be sure you’re on the right side of it.

In March, stocks globally fell at least 25 per cent — and 30 per cent in most G20 nations (though they later recovered much of the lost ground). Then we entered lockdown — a period of home isolation and, for those not furloughed, surplus spending income. A combination of eating at home, a shuttered hospitality industry and barriers to overseas holidays translated into big savings, with the Office for National Statistics revealing that we saved £157bn in just three months.

But many people did not just put it into the bank. Under lockdown there was a striking rise in the number of 25 to 34-year-olds discovering investing. Novice investors flooded the markets in March and April, hoping to profit from the market lows — and perhaps relieve some of the lockdown boredom.

In the second quarter of 2020, this age group saw the strongest growth of new Isa and self-invested personal pension (Sipp) account openings with Interactive Investor, up 275 per cent and 258 per cent year on year respectively. Younger cohorts were drawn to the biggest tech stocks: Apple and Amazon featured among the top 10 stocks held by millennials on Interactive Investor in April, and exchange traded funds, the low-cost, highly tradeable collective investments.

Those buying Amazon at the start of April at $1,901 a share saw the price rise steadily to $3,531 by September 2, a gain of 85 per cent. Over the same period, Apple had an even more impressive trajectory, rising from $60 to $134, up 123 per cent. Doubling your money in a short period is undoubtedly thrilling.

The risks of buying stocks and shares — what goes up can also come down — are widely known. However, some platforms promote investments that carry a considerably higher level of risk. One is the contract for difference (CFD), a bet on short-term share price moves and a popular form of derivative marketed to amateur UK investors. A regulatory review of the market in 2016 found 82 per cent of investors lost money on CFDs. The regulator ultimately imposed stricter caps on the market to protect consumers but risks remain.

If you’ve been tempted to use CFDs, and subsequently lost or won money or experienced a “high”, you’re likely to be gambling rather than investing. And that is not a great foundation for financial security.

The difference between investing and gambling isn’t always clear cut. Both involve risking money for potential financial gain. Some professional gamblers have tried and tested systems, while some investors are actually gambling without realising it.

But my favourite explanation of the difference is in their willingness to accept risk. Are you taking just the risks you should take or are you taking more?

Would you rather have £100 or a 50/50 chance at £200? If you take the £100, you’re an investor. If you go all or nothing, you’re a gambler. Put differently, would you rather put your money under your mattress or in an extremely volatile stock that could become worthless overnight or double in value?

If you expect to double your money quickly, you are probably gambling, even if you are buying a well-known company on the London Stock Exchange rather than using CFDs or playing blackjack in an online casino.

The best investors advocate a slow and steady route to investing success, picking a well-diversified portfolio of investments from different sectors and regions to hold for the long term. Investing regular amounts on a monthly basis and reinvesting dividends are also tried and tested methods of building wealth.

I can remember a reader’s portfolio from my time as a journalist on the Investors Chronicle that was stuffed full of high-risk oil stocks. He was in his late twenties, had a few thousand pounds invested and wanted to make a million by age 40. The overly ambitious target and his get-rich-quick approach set alarm bells ringing. We recommended he have a serious rethink.

Warren Buffett, the veteran investor, was interviewed by CNBC in early 2018, at a time when many so-called investors were borrowing money to purchase stocks and cryptocurrencies or loading up on exotic investments. He warned investors about treating the stock market like a casino and instead advised patient investment in companies with products that already have strong sales and a record of delivering profits.

“A lot of people like to gamble in the stock market,” he said. “It is insane. To risk starting all over again and losing everything is madness.”

Some blame the way we teach investing at home or in the limited ways some schools teach the subject. It’s a conundrum: to get children interested in the subject we can’t make it boring.

In share-picking contests often held over the course of a few weeks or months, the winners are unlikely to be the kids who build responsible portfolios. In truth, investing should be like watching paint dry, but this is hardly going to help children develop a life-long interest in the subject. Or wean them away from Fortnite to the Financial Times.

As part of my stock market summer school, I set my daughter a challenge to get her guinea pigs to pick stocks. They nibbled at the carrots next to ITV and Lloyds Banking Group and we’ve been following their progress every week.

What I can’t do is tell a 10-year-old that we have to wait five years to find out which pet has won. Instead, my aim is to show that investments can fluctuate over the short term, and to emphasise that with real money she’d need to put it aside for a long time, and in more than two stocks. There are ways of communicating the vital lessons of investing — without creating a new generation of gamblers.

Bottom Line Up Front:

1. Learn. Learn from 2020. How has your portfolio behaved so far and how did it make you feel? Volatility is to be expected with investing – but how much of it can you cope with?
2. Review. Speak to your advisor and if the answer to point 1 was ‘it made me lose sleep at night’ then discuss whether you need to change things moving forward.
3. Where now? Has the answer ever been any different for medium to long term thinkers?
4. Opportunity. Don’t waste them. Keep some powder dry and be confident to use downturns to your advantage (easy to say and difficult to do).

The last few months have undoubtedly changed a monumental number of things that we used to do as part of the daily routine. The commute to work may well now be less frequent going forward as more and more firms realise that their staff are efficient from home. Meetings via platforms such as Zoom or Teams are the new normal potentially reducing business travel in the future. All of us got used to shopping for groceries as well as other items on line whereas previously we may have preferred to go to the store.

Who would want to be investing into city center corporate real estate at the moment? Will we see the architecture of cities change as they could feasibly become ‘fatter and flatter’ due to the requirement to go to the office less, if at all? Will offices become null and void altogether with people instead adopting a ‘shared space’ type of environment where they utilize the space for a far shorter period of time if they need to?

So where would you want to invest?

The below has been taken from an article relating to the CEO of Microsoft:

During the COVID-19 epidemic, Nadella has taken to calling the tech giant’s workforce “digital first responders.” The company’s developers and cloud experts are working side-by-side with organizations including the CDC, John Hopkins University of Medicine, state unemployment centers, retailers, and schools. Institutions “have gone through two years’ worth of digital transformation in two months,” says Nadella. “We were seeing the other side of it which is the peak demand on our infrastructure.”

So should any of this impact how or why or when we invest? Not really in my view. No human has ever been able to predict the future, albeit we can open our eyes and look to what sectors we think may fair better in certain conditions. Areas such as Cyber Security, Robotics and Automation, FinTech etc are all reasonably topical at the moment and would generally fall under the ‘tech’ umbrella. ETFs/Mutual Funds that track those sectors have grown exponentially this year. That said, great fund managers have always been good at selecting the best individual stocks so continue to let them do that and ETFs generally allow access to an index which will ‘autocorrect’ anyway ie as one stock gets larger it takes a bigger slice of the pie or if one company goes bust the next one on the list jumps into the index.

The general feeling at the moment seems to be that the market as a whole has had a poor year, the recovery since March is inexplicable and that the market will fall from here due to an inevitable second wave of Covid 19. The reality is, however, that certain companies/sectors within ‘the market’ have generated huge returns in 2020 so far and, in fact, the S&P 500 now sits only circa 1% off it’s February high.

The question, however, is would you have predicted that in January? The answer is of course that you would have been unlikely to have done so. Going forward, where would you invest? Again, this is going to be dictated by your risk profile more than your ability to predict the future.

The situation has not changed from an investment perspective, it never has. Use great fund managers and allow them to do their job. Offset this by using great ETFs to gain whole of market exposure which should never fail and ensure that there is sufficient fixed income/commodity exposure throughout to keep the volatility within a range that you feel comfortable with.

Online grocer Ocado says the switch to internet shopping amid the coronavirus lockdown has led to a “permanent redrawing” of the retail landscape.

Its comments came as it said sales during the first half of 2020 jumped 27% to more than £1bn.

“The world as we know it has changed,” said chief executive Tim Steiner.

“As a result of Covid-19, we have seen years of growth in the online grocery market condensed into a matter of months; and we won’t be going back.”

“We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide.”

He said Ocado was now the fastest growing grocer in the UK, thanks to a 50/50 partnership with Marks and Spencer announced last year.

As part of the deal, which saw M&S take a half-share in Ocado’s retail business, Ocado will start delivering M&S grocery products from September, when its current deal with Waitrose expires.

The group reported a loss before tax of £40.6m in the six months to the end of May, blaming an increase in investment to handle the higher demand generated as a result of the coronavirus pandemic.

During the period the company opened its first two customer fulfilment centres abroad, for Casino in France and Sobeys in Canada, while increasing capacity in the UK.

• Retailers report sales jump in June

The loss was smaller than the £147.4m posted in the same period last year, although that figure included £99m of costs incurred as a result of a major fire at its warehouse in Andover.

But after raising £1bn through an equity and bond issue last month, Ocado said it had £2.3bn in cash on its balance sheet.

“There is evidence to suggest many shoppers will likely continue buying their groceries online once lockdown measures have been lifted completely, but it will be difficult for Ocado to maintain the sales registered at the peak of the crisis,” said John Moore, senior investment manager at Brewin Dolphin.

“Nevertheless, Ocado has a strong balance sheet and the Covid-19 pandemic has super-accelerated many of the trends that have led to its exceptional share price growth over the last few years, placing the company in a good position for the future.”

A new Lidl a week

Separately, discount grocer Lidl has revealed plans to open a shop a week until Christmas, creating 1,000 jobs.
The 25 new stores will be opened across England, Scotland and Wales with sites in Selhurst, Harrow Weald, Coleford and Llandudno Junction opening in the coming weeks.

By the end of 2023 it plans another 100 stores across Britain, creating 4,000 more jobs, and bringing its total number of shops to 1,000.

“It is testament to the continued hard work of our colleagues that we are able to continue forging ahead with our expansion plans, despite the challenging circumstances that have been faced over the past months,” said Lidl GB boss Christian Härtnagel.

Lidl – which opened its first shops in the UK in 1994 – has opened new stores throughout the pandemic in locations such as Birmingham, Torquay and across London.

Recently we have seen significant market downturns and it has been widely reported that the FTSE 100, the benchmark index for the UK stock market, has actually had a negative return over the last two decades. So when people like me tell you that investing is a long term game and short term market volatility should be somewhat ignored (certainly expected), does this revelation not negate that argument?

On the face of it, that would certainly appear to be the case. However, what this statistic does not include, which the below article eludes to, is dividends.

So what is a dividend? A dividend is a payment made to a shareholder. If, for example, you buy shares in BP, you can expect to receive a dividend from BP and, often, these dividends can be significant. Not all companies pay dividends, often some of the large tech stocks in the US do not, however, most of the stalwarts of the FTSE 100 certainly do. Indeed, dividends are often an attractive way for investors to gain an income and there is significant pressure on CEOs of listed firms to ensure that dividends are paid to shareholders regardless of market conditions.

When we look at the performance of the FTSE 100 over the same period of time, but also include the dividends that would have been received by shareholders (total return), this significantly skews the maths back towards holding equity as a great long term wealth builder (the return moves from a negative 14% to a positive 77% over the same time frame).

One of the main issues with investors, however, is that we are all biased in one way or another. It is common for UK based investors to favour UK based stocks, this is common within pension funds for example. In order to efficiently invest for the long term, we need to be looking much wider than the UK and considering the entire globe. Indeed, the performance of the US market or the global index as a whole during the same period of time being referenced above is markedly different.

So, do not always believe the headline. It is important to speak to somebody who has a reasonable degree of market understanding and consider whether there is any information being omitted from the headline that would actually fundamentally alter the statement.

The FTSE 100 has gone nowhere in 20 years, so why are investors told to think long-term? That is the kind of question that those of us who advocate investing in the stock market as the best way to grow your wealth deserve to face.

To measure that you need a total return index – and while FTSE compiles these for its main indices, they are not widely-published, despite the fact that you’d think it would definitely be in the London Stock Exchange or investment platforms’ interests to do so.

Take the FTSE 100 Total Return index figures and the picture over the past 20 years looks very different.

If you want to reassure yourself as you nervously watch stock markets plunge into the red, it’s worth remembering the total returns from this instead of dwelling on one misleading stock market index.