My lessons from 25 years in markets

In a few weeks we’ll be a quarter through the current century. It’s a good moment to draw some conclusions. 25 years is a meaningful period for investors. It’s about the length of time many people will be putting money aside for their retirements and roughly how long they might hope to run their savings down again after they stop work. What happens over a quarter century can be make or break in terms of your financial security.

They say that markets repeat themselves once every generation. That’s how long it takes for one lot of investors to retire and for the collective memory to forget the mistakes we made last time around. That said, I do still have a vivid memory of what was going on 25 years ago. The final crazy weeks of the dot.com bubble were unforgettable.

Even if I didn’t remember 1999, I have documentary evidence gathering dust on my bookshelves. At the time, I was writing an investment newsletter with the former financier Jim Slater. Back then we printed the letter, put it in an envelope and posted it to subscribers. Seems quaint now, but it does mean that my words have not disappeared into the ether. They are there in black and white to remind me of just how loopy markets became.

Here's what I said in the December 1999 issue of Investing for Growth: “some of the dramatic share price movements in recent weeks suggest the market has taken leave of its senses. A kind of millennium madness has taken over when excitable day traders blithely admit they are ‘investing’ large sums of money without the foggiest notion of what a company does or even the basics of valuing its shares.”

We didn’t call it FOMO then, but it was fear of missing out when I went on to say: “no doubt, this frenzy will not last, but it is frustrating to sit on the sidelines when others are making massive sums in front of your eyes by simply riding the wave. It is little consolation to know that, in the long run, your strategy is sound when, in the short term, your profitable, reasonably rated shares seem to be going nowhere.”

Plus ça change! For technology, media and telecoms read artificial intelligence, Trump Trade and bitcoin. There’s much that separates 1999 and 2024 but plenty that looks familiar too.

One thing that is clear from my 25-year-old newsletter is the danger of ignoring excessive valuations. I said: “with high tech stocks, fundamentals hardly seem to matter. Even with profitable, high-quality stocks like CMG, Sage, Admiral, Logica, Sema and Misys, the price-earnings ratios have become astronomic. Once they rise from a reasonable level of, say, 50 per cent above the market average, it does not seem to matter if they then go on to 40, 60 or even 80.”

But, of course, it did matter. Most of these shares have subsequently disappeared but not before they made and then lost eye-watering amounts of money for investors. In August 1997, software group Logica traded at 130 pence, by March 2000 it was nearly £23. By April 2003 it was back at 82 pence. it staggered on for another nine years before being taken over at 105 pence in 2012.

The exception, by the way, is Sage, still a leading accounting software package. It, too, rose eight-fold in the bubble and lost it all in the bust. But 20 years on it is back at a new all-time high after reporting bumper profits and a share buy-back this week.

Logica’s was the more well-trodden path. A second lesson from my trip down the millennial memory lane was just how few UK-listed companies can be expected to even last a quarter of a century. In the November 1999 issue, I also reported on the performance of a contrarian blue-chip portfolio. The shares that came through my screen were: Bass, Blue Circle, Gallaher, P&O, Rio Tinto, Royal Bank of Scotland, Safeway and Tomkins. Rio is the sole survivor in its original form.

This, by the way, says more about UK plc than stock markets generally. Of the top ten companies by value in the S&P 500 Index in 1999, only one - General Electric - is no longer with us. Microsoft, Intel, Walmart, Exxon Mobil, Coca-Cola, IBM, Merck, Pfizer and Cisco may not all be what they were 25 years ago, but they are still alive and kicking.

Which leads to the third lesson from the past quarter century in the markets, which is that the country you chose to invest in over that period is key to how you will be looking back on that period today.

My final, chastening conclusion from the November 1999 issue of Investing for Growth is that stock picking is hard. Conducting another search for out of favour but attractive shares, I alighted on Royal & Sun Alliance, Great Universal Stores and Boots but rejected British American Tobacco and Reed International on the basis of their ‘poor cashflow’. By the time British American Tobacco peaked a few years ago, it had risen around 20-fold from the moment I cast it adrift while Reed, now known as RELX, is still worth 10 times what it was in 1999.

All of which suggests the best thing to arm ourselves with ahead of the next quarter century is a healthy dose of humility. The top-performing market over the next 25 years is unknown, most of the companies we might invest in today won’t be around in 2050 and many of the winners over that period might not yet exist.

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Please note that the views expressed in this article are my own.