As active investors, it can be hard to stick to a long-term investment approach. Yes, you want to be able to seize opportunities quickly when they become apparent, but it can be hard to not sell out when your call proves right in the short term and you are already in profit.
The merit in being patient and not selling out early is evident with the two stocks below. Both of these would have given you over 1,000% returns if you had bought and held over the last five years. Whether you would have had the self discipline to avoid taking profits earlier is a question only you can answer as you read on below!
Home to the popular Warhammer and Lord of the Rings board games, Games Workshop (LSE: GAW) has had a truly spectacular five years. From a share price of just over 500p in early 2015, it has grown 1,223% to a closing share price on Friday of 6,635p. This would have grown your £1,000 investment to £12,230.
Everywhere you look you will find analysts and brokers singing the praises of the business. From a financial perspective, it has grown revenue and bottom line profit year-on-year since 2015. This has been fairly linear growth as well, showing that it is a sustainable model.
From revenues of £118m and £14m profit in 2016, this has grown to revenues of £257m and £67m profit respectively for last year.
A second key financial contributor to the success of the firm is the lack of debt tied to the business. Quoting from the annual report from last year, non-executive chairman Nick Donaldson said “our dividends are paid entirely out of surplus cash generated, not debt. We continue to have no borrowings”.
This allows the business to free up cash flow that otherwise would have to go towards interest payments on debt, along with showing general financial prudence from the management team.
Two months ago I wrote a piece dedicated to the performance of Future (LSE: FUTR), which you can read here. At that time, I showed how a £500 investment would have doubled your money in the space of one year. Looking back over five years, and your £1,000 investment would be up a staggering 11,670%, meaning it would be worth £116,700 using the Friday closing price of 1,280p.
I would stress regarding this performance that this is a huge outlier, and investors should not use this as a barometer for performance against other stocks. The huge growth in share price has come from the company having a turnaround in performance thanks to acquisitions and expansion into new geographical areas.
From posting a loss in 2015 of £1.3m, the business generated a profit of £8.1m for 2019, so you can see how the pivot from loss to profit has coincided with a much higher market capitalisation, reflected by the share price growth.
Overall, there are stocks such as the two mentioned above which can generate you out-sized investment returns. The moral of the story though – stay invested for the long term, even if you are in profit already! You never know how much it could continue to rally over the next five years.
Jonathan Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.