Those who had the fortitude to buy a stake in the business back in mid-March would now be sitting on a gain of close to 80%! Is there still time for new investors to get on board? Here’s my take. 

FTSE 250 winner! 

Back in July, the company reported sales across all parts of its business had bounced back following the easing of lockdown and “normalisation of shopping habits.” The fact procedures at its veterinary operations could now be performed also contributed.

Today, Pets announced the momentum seen in all its channels since reopening in Q1 had continued. As a result of achieving “double-digit” growth in like-for-like sales, management now believes underlying pre-tax profit for the full year (ending late May 2021) will come in “ahead of current market expectations.“

As updates go, I’m not sure existing holders could ask for anything more.

But is it still worth buying?

Given what’s going on in the world and the general nervousness seen in markets, speculating whether this company is worth buying now, however, is tricky.

Shares in Pets At Home were already trading on 27 times earnings before today. That’s expensive for any stock, let alone a retailer. It’s also a mighty price to pay considering the threat of further restrictions due to the spike in coronavirus cases.

As the company itself remarked today: “Covid-19 continues to create a number of material uncertainties around the trading environment, including the risk of a second lockdown.”

Should that second lockdown come, it’s possible we could see a second stock market crash in 2020. If this happens, there’s certainly the potential for the Pets share price to be hammered along with everything else.

After all, highly valued companies will often be the first to be jettisoned from portfolios. Moreover, panicked investors will usually look to sell what they can (i.e liquid FTSE 250 stocks), not what they should.

Resilient sector

For me, ascertaining whether Pet At Home is a great buy really involves asking how long you plan to hold it for. Based on the points above, I’d be tempted to at least pause before reaching for that ‘buy’ button, if it’s only for a few months. These holding periods are for traders, not investors.

That said, those thinking of holding for years rather than months could still do well. As the company itself stated, one of the attractions of the pet care market is its “inherent resilience.” These days, we consider pets as family members and spending on our furry friends has become less discretionary.

Like veterinary services provider CVS Group, I think Pets At Home is a great way of tapping into this trend. Let’s not forget there has also been a boom in pet ownership this year as a consequence of lockdowns. All those new owners will need to shop somewhere. 

No investment is free of risk. For those willing to buy and hold, however, I think this FTSE 250 stock could be a great addition to most portfolios. Just be sure to be sufficiently diversified elsewhere first.

The post The Pets At Home share price is on fire! Is there still time to buy this FTSE 250 winner? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Global equity

The Scottish Mortgage Trust (LSE: SMT) is, in my opinion, one of the best investment trusts to invest for global equity exposure. The £6.5bn flagship Baillie Gifford investment trust invests in both developed and emerging economies, giving its fund manager wide scope to select his best investment ideas.

James Anderson, who has been managing the fund since 2000, likes to maintain a concentrated portfolio of his high-conviction picks. It’s no surprise then that the top 10 holdings accounted for more than half its total assets, while the total number of holdings was 78. This included 42 unlisted companies, which in aggregate accounted for 14.6% of the portfolio.

Impressive performance

Over the past five years, the company has delivered impressive total net asset value (NAV) returns of 171%. That’s more than double its benchmark FTSE All-World Index performance of just 79% over the same period.

It’s clear that the fund has generated this outperformance thanks to its strong preference in technology stocks, which together account for nearly 29% of its assets. On the downside, while this sort of sector-heavy exposure has reaped significant rewards in the past, it also makes the fund vulnerable to a tech sell-off, like the one taking place right now.

But despite its historic outperformance, fees for investing in the fund are surprisingly low, with an ongoing charges figure of 0.44%. Fund fees are sometimes the best predictor of future returns, and it’s particularly important to choose a fund with low fees when you’re investing over a long period of time, as compounding means the costs really add up.

Picking winners

Another fund I’d consider buying for the next decade is Baillie Gifford Shin Nippon (LSE: BGS), an investment trust which focuses on small Japanese companies.

The fund has a really strong track record of picking winners. Over the past five years, Shin Nippon has produced a total NAV return of 278% — a little under two-and-a-half times its benchmark MSCI Japan Small Cap Index’s performance of 113% over the same period.

New Japan

Shin Nippon, which means ‘new Japan’, has achieved this outperformance by focusing on small, fast-growing Japanese companies with innovative business models and dynamic management teams. These companies have recently performed really well due to attractive growth prospects and supportive government policy towards deregulation, outsourcing and promoting entrepreneurship.

Moreover, the limited broker coverage of Japanese small-caps has also added to value which has been created by its in-house research team.

The one downside of this fund is its higher costs. With an ongoing charges figure of 0.89%, it charges just over double the cost of holding the much larger Scottish Mortgage Trust. Still, I believe that this may be a price worth paying in order to invest alongside a highly successful specialist team which has had a long and impressive track record of success. 

The post 2 top investment trusts I’d buy and hold for the next decade appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Thanks to its strong portfolio of brands and ability to generate consistent profits, £55bn cap consumer good company Reckitt Benckiser (LSE: RB) would be one of my top picks.  

“A better, stronger company”

Today’s interim results revealed “broad-based growth” across the majority of Reckitt’s brands. The company booked a 14% rise in revenue to just over £5bn in the six months to the end of June, although like-for-like revenue fell by 1%. Pre-tax profit came in at £1.02bn — a 46% rise on the £697m generated over the same period in 2016.

The Slough-based firm reported making “significant progress” on transforming its portfolio, in line with CEO Rakesh Kapoor‘s desire for Reckitt to become “a more focused consumer health and hygiene business”. The acquisition of Mead Johnson Nutrition — completed last month and a full quarter earlier than expected — appears to be integrating well. Going the other way was the sale of Reckitt’s food business to US business McCormick, the proceeds of which will be used to pay down debt.

But it wasn’t all good news. While Reckitt expects a return to form over the remainder of 2017, the targeted 2% like-for-like growth in full-year net revenue was still labeled as “challenging” given “tough market conditions“. Despite stating that it was now a “better, stronger company“, the ongoing impact of recent operational issues (including the recent NotPetya cyber attack, collapse of sales in South Korea and problematic product launches), also continue to weigh on short term sentiment towards the business. The shares were down over 2% in early trading.

Right now, shares in Reckitt trade on 23 times forecast earnings for 2017. That may seem high but it’s pretty standard for companies of this type, such is the perceived security of their earnings. The business continues to generate stacks of cash and consistently high returns on the money it invests. While relatively low compared to the payouts offered by its FTSE 100 peers, Reckitt’s forecast 2.2% yield is also fully covered by profits and subject to regular hikes by its board (including today’s 14% increase to the interim payout).

Despite its current problems, Reckitt remains a quality operator and one I’d have no problem holding indefinitely.

Reassuringly expensive

Another company I’d feel content to tuck away is alcoholic drinks maker Diageo (LSE: DGE). Like its FTSE 100 peer, the £58bn cap boasts high operating margins, strong free cashflow and an enviable portfolio of brands (including Guinness, Captain Morgan and Baileys).

Like Reckitt, Diageo has also been on the acquisition trail of late, snapping up US super-premium tequila brand Casamigos for $1bn. With the latter delivering a compound annual growth rate of 54% over the last two years, it’s not surprising that Diageo wants a chance to introduce the multi-award winning label, part-owned by George Clooney, to an international audience. The acquisition is expected to complete in the second half of 2017 and begin contributing to profits in four years time. 

Like Reckitt, Diageo’s shares will never be ‘cheap’ in the traditional sense, trading as they do at 20 times forecast earnings for 2018. Nevertheless, for such a resilient company, I still think the shares are well worth snapping up.

The post Why I’d buy and hold Reckitt Benckiser Group plc forever appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Diageo and Reckitt Benckiser. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This year, one of the things that caught my eye was a clarification he made on buy-and-hold investing.  He wrote:

“Sometimes the comments of shareholders or media imply that we will own certain stocks ‘forever’ … But we have made no commitment that Berkshire will hold any of its marketable securities forever”.

He suggests confusion on this point may have arisen from a “too-casual reading” of a set of business principles — included in Berkshire’s own annual report since 1983 — which he thought would “help new shareholders understand our managerial approach”.

The principle in question states:

“Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash …”

The point Buffett has now clarified is that this principle applies only to businesses Berkshire owns (outright or with a controlling stake) and not to minority shareholdings (‘marketable securities’) in companies listed on the stock market. He emphasised that “we regard any marketable security as available for sale, however unlikely such a sale now seems”.

Is buy-and-hold dead?

I don’t believe Buffett’s pronouncement means buy-and-hold investors should abandon the strategy. For one thing, he’s held some stocks — Coca-Cola, for example — for an awfully long time. If a business continues to offer the prospect of returns that are acceptable to him, he might indeed hold “forever”.

Unless you take buy-and-hold literally — which Buffett doesn’t — buying a stock as if you were going to hold it forever isn’t incompatible with regarding it as available for sale. Circumstances may change at some point in the future and dictate that a sale is the most beneficial course of action to take.

When to sell

In my view, there are really only two reasons to sell a stock for a buy-and-hold investor.

The first is if a permanent loss of capital becomes a serious risk. A prime example would be a company that becomes overburdened with debt and cash flow problems to the extent that there’s a real possibility of bankruptcy. Indeed, this is the reason why Buffett generally avoids investing in companies with high levels of borrowings.

The second good reason for a buy-and-hold investor to sell a stock is if it becomes so manifestly overvalued that recycling profits into a more reasonably valued business makes clear sense.

Of course, in both cases, if you set the bar too low, you will end up trading stocks so frequently that you’ll rack up excessive trading costs, which will erode the benefits of buying great companies at reasonable prices and holding them for the long term.

Still sensible

It’s not always easy to assess whether a company’s level of debt and cash flow problems are a temporary issue or if they seriously threaten a permanent loss of capital. Similarly, it can be difficult to decide when a stock is truly overvalued.

Buffett may be highly adept at making fine judgements on these matters, but I would say that for the average private investor, unless you are wholly convinced that a business is in mortal danger or extremely overvalued, continuing to hold the stock is still a sensible policy.

The post It’s a myth that Warren Buffett buys stocks to hold forever! appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

There are three key studies that support this view. All of the studies take different approaches but arrive at the same conclusion… the only way to outperform the market is to invest with a long-term outlook and reinvest your dividends.

Don’t leave it to chance

The first study supporting the above argument looked at the returns of the S&P 500 over six time periods between 1926 and 2015. The six time periods studied were daily, quarterly, one-year, five-year, 10-year, and 20-year. Over this massive 89-year period, the study showed that if you owned the S&P 500 for one day only, you had a 54% chance of a positive return and a 46% chance of a negative return. If you owned the index for a quarter, you had a 68% chance of a positive return and a 32% chance of a negative return.

Over a five-year holding period, the possibility of a positive return dramatically increased to 86% and over a 10-year holding period the possibility of a positive return rose to 94%.

The most notable figure, however, is the chance of a positive return over a 20-year holding period. If you bought the S&P 500 at any point during the last 89 years and held for 20 years, the data shows that there was a 100% chance of a positive return.

Equity income outperformance

The next study comes from RWC, an independent investment manager established in 2000. RWC runs a simple UK equity income strategy fund, and to show the benefits of such an approach the fund manager published some performance figures at the beginning of last year.

Over a rolling 12-month period, using a simple equity income strategy, an investor would have had a 63% chance of outperforming the wider market according to RWC’s figures. This rises to a 79% chance of beating the market over any rolling five-year period and an impressive 100% chance of outperformance over any 10-year rolling period.

The income component

The reason a buy-and-hold approach outperforms over the long term has a lot to do with the income component of equity returns.

Last year the Brandes Institute published a study analysing public market data as far back as 1926 to evaluate the impact income had on total returns. The main finding of the study was that for overall rolling 20-year periods between 1926 and 2014, dividend income accounted for more than 60% of US equity returns. Over rolling five-year periods dividend income accounted for slightly more than 40% of US equity returns. And over rolling 10-year periods, dividend income accounted for 50% of US equity returns. 

Put simply, dividend income accounts for around half of equity returns over the long term. As most indexes don’t reflect dividend income, the buy-and-hold investor is almost certain to outperform over the long term if dividends are reinvested. 

The post Want To Beat The Market? Look No Further appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Over the years, there have been thousands of pages of research published on the subject, and all these studies reach the same conclusion — the best time to buy is when others are selling.

Unfortunately, all these studies also show that in the short-term, underperformance is inevitable. Moreover, any seasoned investor will tell you that’s it’s almost impossible to time the market. 

Market timing mistakes 

Trying to time the market by moving out of stocks when the outlook appears bleak, with the plan to buy back in when things improve, often ends in failure and can cost investors dearly. 

You see, most of the market’s gains are usually made in a very small period. Missing just one or two days of trading can wreck years of performance figures. 

For example, between 1994 and 2013 the S&P 500 returned 9.2% per annum. However, if investors’ had missed the index’s best ten days of trading over this two-decade sample period, annual returns would have slipped to just 5.5%.

By missing the best 30 days of trading, returns would have collapsed to a mere 0.9% per annum. Miss the best 90 days of trading, and investors would have lost 8.6% per annum between 1994 and 2013. 

Over the above sample period, the market experienced two major setbacks: the dot-com boom and the financial crisis. The figures suggest that investors who did nothing throughout both of these crises came out better than those who attempted to avoid them. 

Even though the figures above are based on the performance of the S&P 500 — an American index — they’re still relevant. The S&P 500 is considered to be the world’s leading stock index, accounting for around 12% of the global equity market capitalization. 

Buy when others are fearful

Another study, this time looking at investors’ performance over four decades showed similar results to the study above. 

In this study, four hypothetical investors each invested $10,000 in S&P 500 from January 1, 1972, to December 31, 2013, but all four investors acted differently during the 1973 to 1974 bear market. Between 1973 and 1974 the S&P 500 lost 50% of its value. 

The “Nervous Investor” sold out and went to cash. The “Market Timer” sold out but moved back into stocks on January 1, 1983, at the beginning of a historic bull market. The “Buy and Hold Investor” held steady throughout the period.

And lastly, the “Opportunistic Investor” realised that the bear market had created opportunities and contributed an additional $10,000 to his original investment on January 1, 1975.

How did these four very different investment styles work out? 

Well, by 2013, the Nervous Investor’s $10,000 investment had returned a compound gain of 9.6% in total over four decades! The Market Timer did slightly better, with a total return of 2,500% over the period. The Buy and Hold Investor did even better, with a total return of 6,440%.

However, the Opportunistic Investor saw their capital increase in value by a total of 15,210% over the period, turning $10,000 into $1.5m. If that’s not an incentive to buy when there’s blood in the streets, I don’t know what is. 

The post Here’s Why You Should Be Buying When Markets Are Falling appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.