Once you've bought, keep close tabs on your investment's progress.
Okay, so you've bought shares in a company. What do you do now? I say you should keep a wary eye on the company and monitor your investment performance if only because it's easy to otherwise fool yourself into thinking that your returns are better than they really are.
Some investors choose to largely ignore company news, rarely check the share price and they throw the annual reports straight into the bin. This can be a dangerous strategy as it's easy to miss a key piece of information, such as that increased competition is causing the company's major product to struggle in the market.
Other investors choose to analyse every piece of news in great detail, build up massive dossiers on their shareholdings and effectively turn investing into a way of life. In contrast for traders a long-term investment is a few days so their primary concern is short-term price movements and breaking news. As Sly & the Family Stone put it, it's "different strokes for different folks."
Good Sources Of Information
I fall into the category of "long-term buy and hold but check the news fairly frequently" and find that the best tool for monitoring shares is the Stock Exchange Regulatory News Service (RNS) through which UK listed companies publish all official announcements.
This doesn't mean that you have to get up every morning before 7am so that you can read the early morning news before the market opens! Some people do though, particularly on days when one of their major holdings is announcing its annual results.
Many investors prefer to use services that provide summarised company data, or just rely on the published P/E ratios and dividend yields in the newspapers. My preference is to always check these figures by going to the original source, the company's annual and interim reports, because sometimes summarised data will contain errors and/or leave out key information.
Reed Elsevier (LSE: REL) provides a good example of this problem. Reed produces two figures for its earnings per share, a statutory figure and another that ignores any goodwill write-offs because the directors consider that this figure more accurately reflects the business' performance. I wrote about this here two weeks ago, investors who rely on a summarised data service or the newspaper might easily miss that there are two earnings figures.
It's easy to get copies of annual reports; most companies are happy to post them to you and almost every quoted company operates a website where you can download them in Adobe's PDF format. Many annual reports include summaries of the past five years' performance in the notes to the accounts; these are particularly useful because they enable you to quickly see how the company has performed in recent years.
Many people avidly watch the 24-hour financial television channels and they can be useful sources of information for traders, or if you really enjoy watching them more for entertainment, but for me their somewhat frenetic style can easily lead to overtrading.
AstraZeneca Revisited
Earlier this year I bought some shares in the pharmaceutical company AstraZeneca (LSE: AZN). My reasons for buying AstraZeneca shares are detailed here and since buying the shares are up by almost 7% (8% including dividends) during which time the FTSE 100 has risen by 20% (22% with dividends).
Sure, I'd have been better off buying a FTSE index tracker, but the problem with relying on hindsight is that it's 20/20 vision after the event. If we rely on hindsight I'd have been far better off putting the lot on Denman to win last Saturday's Hennessy Gold Cup!
My "big picture" reason for owning pharmaceutical company shares for the long term is that the developed world's population is ageing and, when this is combined with the increasing affluence of the developing world, this should cause the demand for drugs to continue grow strongly for the foreseeable future. Nothing has happed in the last six months to change my view, not even the ongoing US healthcare debate.
The RNS statements for the past six months tell me that that the big stories about AstraZeneca are:
- seeking approval from US and EU regulators for several drugs, including the anti-blood clotting drug Brilinta;
- 2009 third-quarter earnings increased by 23% (probably the key piece of news);
- several new drugs have been approved by the US and EU authorities, including the diabetes treatment Onglyza; and
- the lung cancer drug Zactima has been withdrawn from the regulatory approval process.
Pharmaceutical companies have to continue to develop new drugs in order to survive. They cannot rest on their laurels because once an existing drug's patent expires the generic (copycat) manufacturers will enter the market and compete away most of the profits produced by that drug. Although I don't have the expertise to consider the merits of particular drugs and their prospects, the past six months' reports tell me that AstraZeneca's pipeline of new drugs is continuing to operate. However, someone with specialist expertise in pharmaceuticals should find that this gives them an edge when it comes to analysing pharmaceutical companies.
But at the same time as buying AstraZeneca I hedged my bets by also buying shares in the other British pharmaceutical major, GlaxoSmithKline (LSE: GSK). GSK has been a better performer; its shares (including dividends) are up by 23% over the same period -- it's a prime example in favour of diversifying your investments!
More from Tony Luckett:
> Tony owns shares in AstraZeneca, Berkshire Hathaway and GlaxoSmithKline.
