Long Term Holding Advice Changes

As a private individual if you follow some advice that is supposed to cover 10-20 years and it turns out to be incorrect you don't really get much of a second chance, you still need to retire on the same date.

I will reuse this quote “There is a big difference between real mis-selling and compliant advice, where performance has not met the return assumptions." in other words we were wrong but never mind.

When Shown To Be Wrong In Practice The Principle Always Remains.

The retail banking sector is a great example of this, in the years before the 2008/2009 banking crisis nearly everyone was saying that banking shares should form part of your long term investment portfolio and the Royal Bank Of Scotland was a good choice.

I am not picking on RBS here, Lloyds and Barclays would have been poor investments and HSBC only slightly better.

In case you are thinking that the RBS shares will eventually recover, remember that the management gave up on this idea when they did a share swap, reducing the number of share in circulation to one tenth of the previous amount and increasing the price 10 fold. This moved the shares from about 25p to £2.50, meaning that an RBS share at the pre-collapse value would now cost about £60!

Yet every time a big business fails or there is a big change in a financial object everybody claims that it was an exceptional event and there is no need to re-evaluate the strategy.

Maybe you can put more than £5K away but even then the results of looking at Barclays Bank are quite startling.

Once you show someone these numbers they accuse you of picking a specific example to prove a point, despite it being patently obvious that this is not the case as both RBS and Lloyds show worse trends whereas HSBC looks much better.

Anybody who didn't have some bank shares in the 2000s would have been told that their portfolio was badly unbalanced and they really should get some.

Talking about this in the pub I am often told that I am ignoring the benefits of dividends and dividend reinvestment, "I have had 10 years of dividends from my holdings and have bought more shares in that company."

Sadly it often turns out that the current value of that holding is less than the initial investment plus the value of the reinvested dividends.

If all this downer on long term holding sounds wrong think of a number of big name companies and do a share price graph from the year 2000 to now. I suspect that you will be surprised by
  • The amount of your capital you would be losing if you had to sell today.

  • How much of your reinvested dividends were at share prices higher that they are now.

  • How many companies weren't public companies back then so they don't have a share price for 2000.

  • How many companies that you do remember you can't find.

For many people the period 2000 to 2019 would cover them starting to buy shares at 40 and at 59 getting near to retiring.

Of course there are some spectacular gains to be had by holding onto shares for a long time, but you mustn't misread the past. I was looking at LON:AFC back in 2008 and I could have had close on 30 times what I didn't invest.

I didn't invest because I choose other similar companies, which didn't do as well.
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