Every FTSE 100 stock is a bit of a gamble. Investors can do all the research they like, but they remain at the mercy of events.
Company-specific shocks such as the loss of a key customer or the sudden emergence of a cut-price rival can throw the best-run firms off course. Broader shocks such as war, recession, tariffs, and a host of other nasties can also wreak havoc.
The surprises can also be positive ones. Just look at Rolls-Royce (LSE: RR). Five years ago, the aircraft engine maker was down in the doldrums, its revenues plunging as airlines grounded flights during the pandemic. Nobody could have predicted the impact of new chief executive Tufan Erginbilgiç, who began his tenure in January 2023 by calling Rolls-Royce a “burning platform” and then set the share price alight.
Rolls-Royce shares soar
Most regular readers here won’t be surprised to discover it’s the best-performing stock of the past five years, up 965% in that time. That would have turned a £10,000 investment five years ago into a thumping £106,500 today. That shows supposedly stodgy FTSE 100 blue-chips can transform investor wealth.
The Rolls-Royce share price continues to climb, up 105% in the last year, although it has dipped around 6% in the last turbulent week.
The big problem for investors is that nobody knows which company will be the big smash hit beforehand. With hindsight, everybody knows (and a lot of good that does them). Nobody knows which will be the big losers either, and if investors choose too many of them, this will erode their gains elsewhere.
Investors typically combat this threat through traditional portfolio planning methods such as diversifying across a spread of shares and investing for the long-term, giving winners time to shine. But something else works in their favour.
WPP is the big blue-chip loser
The worst FTSE 100 performer over the last five years is advertising and media giant WPP (LSE: WPP). Its shares have plunged 57%, reducing a £10,000 stake to just £4,300. While Rolls-Royce appointed a transformative CEO, WPP lost one in the shape of Martin Sorrell, who left under a cloud in 2018.
WPP has also been hit by weak client spending, tech giants taking more ad budgets, and companies bringing marketing in-house. Heavy investment in restructuring, AI tools and cost-cutting has failed to reverse the slide. The shares have crashed 60% over the last year.
If an investor had split £20k equally between Rolls-Royce and WPP five years, they’d have gained £96,000 on Rolls-Royce and lost £5,700 on WPP. Today, their original stake would be worth £110,800. That’s a 454% increase. Unless investors do something risky like spread betting or shorting, the potential upside in shares is unlimited, while losses are capped at the original stake. And this very much swings the odds in the investor’s favour. I’ve chosen an extreme example, but I think it proves the point.
I wouldn’t consider buying either of these shares today. Rolls-Royce has soared too high and looks pricey, while WPP may take years to recover. Instead, I’ll target FTSE 100 shares that I expect to do well over the next five or 10 years. With luck, I’ll end up with more of the latter. Time, patience, and mathematics are on my side.
