As an investor, I aim to think long term about the stocks I buy. This is easier said than done, especially if the stocks are quite volatile. Swings both to a high profit or a high loss can make me want to sell out. However, looking at past performance can help to show me that I can ride out short-term movements. For example, what if I’d bought shares in International Consolidated Airlines Group (LSE:IAG) exactly a decade ago?
Rewinding 10 years
I’m sure you’d agree that the world was a very different place in March 2011. Before I let my mind drift too much to those hazy days, let’s get back to business! IAG shares closed at 149p on March 18 2011, and are currently trading at 216p. So over the decade, I’d be up 45%. Annualised, this is a 4.5% return, but doesn’t include dividends.
Although the company isn’t currently paying a dividend, it has done for periods during the last decade, so my actual profit would be higher than just the 45% mentioned above.
This return is actually very impressive, given the events that have occurred during this period. The obvious one that comes to mind is the impact of the pandemic over the past year. IAG shares started 2020 comfortably above the 400p mark, but due to lockdown and restrictions on international travel, we saw the share price tumble. Full-year 2020 results showed a revenue drop of 69.2%, with a large loss of €7.4bn.
If I’d been holding IAG shares over the past year, I might have been tempted to sell. During Q4 last year, the share price dropped below 100p. At this stage, I would have been in the red. But having a long-term mindset would have come in handy. Remaining patient allowed time for the shares to recover back above 200p.
Should I hold IAG shares for the next decade?
Looking forward from here, is it worth holding IAG shares for another decade? Personally, I think so. Events like the pandemic are once in a generation. IAG has managed to survive the worst of it, and has taken steps to improve the balance sheet. €2.74bn of capital was raised last year to help liquidity, and non-fuel costs were cut by 37.1%.
After the dip should also come the surge. So for 2021, I think IAG shares could benefit from the pent-up demand of both business and leisure travel. Beyond 2021, it’s hard to predict, but at a basic level I can’t see global demand for flying dropping significantly over the next decade.
But bouncing back will still take time and this remains a risk.
Yet I think the main risk for IAG shares looking forward is the decisions taken on strategy. The group has leant on long-haul flights (mainly via British Airways) as the profitable area in the fleet. Short-haul traffic via Aer Lingus relies more heavily on volume of passengers. With the recent purchase of Air Europa, I’m not sure where this sits. It’s in the top three domestic carriers in Spain, but also flies to the US and South America. I think the group needs to have a clearer vision going forward on what area to specialise in.
Overall, I’d buy IAG shares now for the next decade, given the performance and resilience shown by the company.
jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has 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.