Can there be a more compelling advert for a long-term buy-and-hold investment strategy than the London Stock Exchange (LSE: LSEG) share price? I don’t believe so.
As a new private investor, I first became aware of the attractions of the business around 2005. Back then, one-time The Motley Fool writer and analyst Maynard Paton published much to point out the company’s monopoly position in its market. He also invested, held and did very well, selling out just before the credit crunch pulled the rug from the share price.
Wonderful gains
Indeed, between the autumn of 2004 and December 2007, the stock price increased by more than 400%. But it did so without me aboard. However, the financial crisis that decade caused the stock to plunge. And by the spring of 2009, it was within a whisker of its level in 2004.
I was poised. I was ready. I was all over the global financial markets infrastructure business with my research, but… I failed to invest! And, looking back now, that error of omission pains me. With the share price near 7,800p today, the gain since 2009 has been about 2,000%. And I’d have enjoyed a healthy stream of rising shareholder dividends on top.
That kind of return is the sort of thing that has the potential to make millionaires of people on the stock market. But can LSEG do it again? Maybe.
Over the past year, the share price is up about 13%. But it’s essentially been range-bound. However, last December’s announcement of a strategic partnership between LSEG and Microsoft could lead to big things.
A massive development?
I do own a little slice of the company because of my holding in Finsbury Growth and Income Trust. And the trust’s investment manager, Nick Train, looks for businesses with the potential to compound their earnings steadily over time. In other words, he focuses on investing in high-quality enterprises.
Train described this development as “massive”. And the directors at LSEG said the partnership will bring together the “industry leadership” of the London Stock Exchange Group with the “trust and breadth” of the Microsoft Cloud.
The aim will be to build “next-generation” services that will “empower” LSEG’s customers. They’ll be able to generate business insights and automate complex and time-consuming processes.
An impressive trading and financial record
Time will tell whether the move will go on to boost earnings for the company. But the multi-year record of trading and financial figures is impressive. And I wouldn’t like to bet against the business growing well into the future.
However, nothing is certain. And back in 2007, the business did display some cyclical vulnerability when the stock crashed in the wake of the financial crisis. And it was that uncertainty that kept me dithering about buying some of the shares back then.
Nevertheless, my belief is that it’s a good time to pick stocks to hold for the long term. And if I had spare cash to invest, London Stock Exchange would be near the top of my list of candidates.
Meanwhile, the forward-looking earnings multiple is running at about 23 for 2023. That’s not cheap, but at times, the valuation has been higher.
