The stock market’s brilliant. It may seem like a scary place to have your money at volatile times, but despite wars, financial crises and recessions, the FTSE 100 and its forerunner FT 30 have never failed to go on to reach new highs.
Regularly investing in a common-or-garden FTSE 100 tracker fund through all the peaks and troughs has enabled resolute investors to build up a nice pot for retirement. However, while a FTSE 100 tracker is a simple way for anyone to share in the wealth created by the biggest companies on the London stock market — and indeed is a good choice for many — it is possible to earn a better return by investing in selected individual companies.
A sensible strategy
The potential to generate a higher level of wealth at an earlier stage in life — with all the enhanced options that brings — naturally has considerable appeal. But there are pitfalls. The costs of frequently trading shares can defeat the object, while chasing hot stocks and sectors can be disastrously wealth-sapping.
For me, a carefully selected portfolio of prudently managed businesses with compelling long-term growth drivers is a sensible strategy. And buying into such businesses at times when investors with shorter-term horizons are uninterested should pay off in the long run.
Long-term thinking
PZ Cussons (LSE: PZC) is one enterprise I’d be happy to buy a stake in today. With the shares trading at a level first reached as long ago as 2010 and an uninspiring earnings record over a number of years, this is a company that many shorter-sighted investors would instantly rule out.
However, looking at the longer-term context, both historically and in the decades to come, I’m very confident about Cussons’ prospects. Its strong stable of brands in personal and household goods and extensive exposure to emerging markets mean it’s very well placed to benefit from the long-term rise in prosperity and disposable incomes in the developing world, which is likely to be a major theme through the 21st century.
Ups and downs
In the first decade of the century, Cussons shares increased almost tenfold (versus a decline of about 20% for the FTSE 100), showing the benefit of its exposure to emerging markets and management excellence (as well as investors willing to pay a higher earnings multiple for the growth it was delivering).
Since the shares first reached their current level in 2010, broad emerging markets indexes (up about 15%) have underperformed the FTSE 100 (up about 40%). Africa accounts for around two-fifths of Cussons revenue with the lion’s share coming from its historical heartland of Nigeria, which has been hit hard by the collapse of the oil price.
It’s testament to Cussons’ management that its business performance has been as resilient as it has, and testament to its prudent strong balance sheet that it’s been able to continue investing heavily, both organically and by acquisition, for the future.
Back to the future
Cussons should emerge from this period as a stronger business than ever. I fully expect earnings to power ahead long into the future and, as it continues to expand geographically in the coming decades, for single-country risk to recede significantly.
For these reasons, I expect the stock to outperform the FTSE 100 in the long term and see now as a great time to buy into the business.
