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Does that list have a familiar ring to it? It should do because over half of them, or their successor companies following mergers (modern names are given in brackets), are still amongst the top 20 largest companies at the beginning of 2000. Here is the list in full:
If you had invested in a fund tracking the All-Share Index at the beginning of 1975 your initial stake would have grown by an average of 13.3% over the 25 years, and that is before re-investing any dividend payments companies may have given you.
When you see in the newspaper that a Wise broker has set a price target of 500p for Bulls-R-Us plc, how long is this forecast expected to last? Many newspapers themselves regularly publish tips. The majority do so in early January, picking shares which they hope will rise over the coming year.
Investment magazines are even more short term than that, rushing out recommendations at monthly, and in some cases, weekly intervals. Worst of all, the Daily Mirror publishes its Tip of the Day every morning during the week!
One of the differences between these Wise outlets and the Fool is that we don't tip shares. Period. The whole charade turns the ins and outs of investment into a gambling game. Of course, we also believe Fools should have fun looking at businesses.
But the short term approach favoured by the Wise, although it might seem enjoyable at the time, may not provide lasting happiness in the long run. Let's trot out those vital statistics again. Over the past twenty years, nine out of ten managed funds have failed to match the performance of the FTSE All Share Index. Hardly hilarious for those who have placed their faith in the Wise.
And 70% of Day Traders fail to make any profit at all. Those who don't, and instead end up with horrific losses, might follow the scary example of Mark Barton who killed nine people, including his wife and child, before committing suicide in Atlanta last July after he had lost over $100,000 in just 15 trading days. Even further from fun.
Here at the Fool, we are after long-term happiness. This comes from ignoring day-to-day noise and share price volatility. True contentment can be found by focusing instead on the durability of a company's business, the appeal of its products as well as the effectiveness and efficiency of its managers in implementing and ensuring the long term growth of the business.
The medium of the message boards allows Fools to swap individual research ideas and views over the Internet in a friendly and fun fashion. But above all, long-term happiness comes from you deciding what your own "long-term" is.
Before starting out, decide what your investment horizon is. Why are you saving money? What do you plan to do with the proceeds? Are you saving up for a retirement income, to pay off the mortgage, or just for rainy day? When, in that case, do you plan to exercise your holdings?
Not many Wise market commentators and investment reporters mention the importance of setting this perspective. It's because everyone has different aims. The trouble is that most Wise tips mean nothing because little or no context is given about what sort of person with what particular investment outlook they should apply to.
Here at the Fool, on the other hand, whilst we offer many investment ideas in our features, we will never categorically tip one company over another. Our on-line portfolios, the Qualiport and the Rule Shaker, are real money portfolios run by actual Fools. When making their decisions, they are thinking about their own particular long-term and making sure it fits with their investment style.
The moral is that we all have to do our own research, based on our own outlook and investment requirements.
One of the top investors of all time, Warren Buffet, is a great fan of this common sense approach. He has held some of the stock in his portfolio, like Coca-Cola (NYSE: KO), for over thirty years or more. This has helped him realise an average annual return of more than 25% consistently for that period.
As a closing example, let's try and learn from Warren and go back 25 years. Imagine you had started to invest in 1975, with the intention of saving enough money to retire at the millennium. Which ones would have proved very Foolish investments? And is that investment horizon too long?
In terms of market value, here are the top 20 companies listed on the London stock exchange, at the start of 1975:
Company Value Sector
British Petroleum £1,313m Oil & Gas
Shell T&T £1,221m Oil & Gas
ICI £999m Chemicals
Brit. Am. Tobacco (BAT) £684m Tobacco
Unilever £570m Food
Marks & Spencer £569m Retail
General Electric (Marconi) £540m Electrical
Barclays £474m Bank
Commercial Union (CGU) £399m Insurance
Great Universal Stores (GUS) £391m Retail
Imperial (Tobacco) £374m Tobacco
Distillers (Diageo) £363m Beverages
National Westminster Bank £337m Bank
Boots £310m Retail
Rio Tinto Zinc (RTZ) £300m Mining
Royal Insurance (Royal & Sun)£279m Insurance
Beecham (SmithKline) £274m Pharmaceutical
Allied Breweries (Diageo) £261m Brewing
Midland Bank (HSBC) £251m Bank
Glaxo (Wellcome) £251m Pharmaceutical
Company Value Sector
BP Amoco £121.3b Oil
BT £98.4b Telecom
Vodafone AirTouch £95.4b Telecom
HSBC £73.0b Financial
Glaxo Wellcome £63.7b Pharmaceutical
Shell T&T £51.2b Oil
Astra Zeneca £45.6b Pharmaceutical
SmithKline Beecham £44.4b Pharmaceutical
Lloyds TSB £42.4b Financial
GEC/Marconi £29.8b Electronic/Telecom
Barclays £26.6b Financial
Cable & Wireless £25.5b Telecom
Orange £25.0b Telecom
Prudential £23.8b Financial
Natwest £22.2b Financial
Colt Telecom £21.2b Telecom
BSkyB £17.2b Media
Diageo £17.0b Beverages
Anglo American £16.8b Mining
Rio Tinto £15.9b Mining
Since the ones above have mostly managed to retain their positions at the top of the tree, if you had invested in those most would have continued to dominate.
What about the newcomers, how have they risen to prominence? These are mainly telecom companies, such as BT (LSE: BT.A), Vodafone AirTouch (LSE: VOD), Cable & Wireless (LSE: CW.), Orange (LSE: ORA) and Colt (LSE: CTM). Satellite television broadcaster BSkyB (LSE: BSY) has also come to prominence over only the last decade.
Back in 1975 though you couldn't invest in any telecom company at all. BT was owned by the State. And as for satellite television, that was just a twinkle in Rupert Murdoch's eye.
Although the benefit of hindsight is immense, it would have been quite possible to make several sensible decisions in 1975 as to what types of companies would have survived the succeeding 25 years. Such stayers as banks, oil producers and drug developers come to mind.
Things are changing at a much quicker pace today than at any time in the past. One trend is definitely that retailers' profits are being eroded as the Internet makes distribution of commodity-style goods easier. Concurrently telecom companies are carrying this information and benefiting from this fundamental economic change.
It may seem puerile to try and predict what will happen over the next 25 years. But if you want to be a good investor, you need to find out what your investment horizon is and put your portfolio in perspective.
To ease this task the Motley Fool in the US has set up a NOW index, to rival the conventional Dow Jones. These companies represent what Fools reckon are the most happening companies, including UK chip developer ARM Holdings (LSE: ARM), at the moment.
The Motley Fool UK hope to set up their own version as well in the future. You should be trying to think what companies will be in a NOW index at the end of your investment days when you reach your horizon and the sun sets on your portfolio.
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