Another year beckons. It’s an ideal time for many investors to think about their investment objectives, review the portfolio and think about what the next big themes could be and what shares might do well. I for one have been doing all this, and this is how I’ll be investing in shares in 2022.
Investing in shares
As we go into 2022, there are perhaps more uncertainties than usual for investors. We haven’t, for example, had to worry about inflation or interest rate rises for quite a while. Supply chain issues are a relatively new phenomenon. A recurrence of concerns about the Chinese economy and especially the health of its property market is not helping. Yet all these issues could just as easily fade away into irrelevance in the coming months.
For long-term investors, it’s about keeping cool. This is what I’ll try my utmost to do. As a long-term investor, what I want to do is try and copy as far as my abilities and time allow is to try and replicate the behaviours of successful investors like Nick Train, Terry Smith and Warren Buffett. They all invest in different companies and have slightly different styles and methods. What links them though is their conviction, ability to stick through the tough times and all have outstanding past success.
That stems from being long-term investors in my opinion. So when thinking about investing in shares this year, I’m going to mindful that any new investment I buy must still be a good company in five years time. This is a simple litmus test for me. If I can’t convince myself a company will be bigger and better in five years time, then I won’t buy in in 2022.
Which companies could be better by 2027?
Having run through my portfolio, I’m confident all my holdings pass this test. One of the ones though that I have the most conviction in is Diageo (LSE: DGE).
My colleague Harshil Patel named the company his top British stock for 2022. Partly this was because it’s a defensive stock so its shares could be expected to do better than average even if the market falls. It should also be able to keep growing though. No small part of the reason why is because Diageo expects an extra 550m consumers to come of age this decade. That’s a lot of potential new customers for its drinks.
I am very confident that by 2027, Diageo will be bigger and better. Management has a plan to grow. At its Capital Markets Day in November, CEO Ivan Menezes laid out new medium-term forecasts. The guidance was for annual organic sales growth of between 5% and 7% for the 2022/23, 2023/24 and 2024/25 financial years, compared with 4% to 6% from 2017 to 2019.
This growth is very achievable in my eyes. Along with a rising operating profit, I think Diageo could do well in 2022 right through to 2027. For me, it’s a top stock.
The big risk is that the shares aren’t cheap on a P/E of 34. So management needs to grow sales and profits otherwise the share price could underperform.
The final word
Above all else, to make the most of the opportunity that investing in shares creates, I’m going to maximise my stocks & shares ISA. I remain completely convinced this tax-efficient way of growing wealth will help me retire early.
