Justin Urquhart Stewart's golden rules for investors
18th November 2016 17:09
Share on
Interactive Investor is 21 years old. To celebrate, our top journalists and the great and the good of the City have written a series of articles discussing what the future might hold for investors.
Well, 1995 was something to remember. Following on from a year of falls in the index, 1995 saw not just the launch of Interactive Investor, but also the conception of the next bull market - one that would incorporate the excitement of the dotcom boom and, of course, its subsequent financial bust.
However, the mid-1990s, despite some weaker early years in the FTSE, were a period of growing hopefulness as new ideas came to the fore and the appealing illusions associated with new technology added to an air of investment optimism.
It was a decade since the more automated market trading of the Big Bang had been introduced (although not settlement, which was still largely share certificate dominated), and the last trading floors had disappeared.
Volumes then started increasing as London started to attract a greater proportion of international institutional trading. However, for private investors, the investment world had already changed dramatically on the back of the great Thatcherite policy of privatisation.
This was to be the beginning of a new world of popular share ownership and shareholder democracy.
While the period of the great utility privatisations had long since passed, 1995 saw its last muted hurrah, with the launch of Railtrack as part of a rushed and somewhat confused rail privatisation programme.
The National Power and Powergen flotations also took place. News that the UK's largest building society, Halifax, was going to float the following year reignited investor interest. Once again, a windfall of shares, many of which would be free, was on the cards. The big demutualisations had begun.
Share ownership was for many people a matter of luck, dependent on which building society they had joined. However, demutualisation "junkies" began opening accounts in a range of societies in the hope that these would be the next to float. The rush for free shares turned into a fad.
Real investing seemed to have been forgotten in a "fools' gold" rush for quick profits on the back of floats.
Little did those punters know, but worse was to come. It was against this background that sense and direction from an embryonic Interactive Investor came forth.
Amid a sea of financial ignorance and investment greed, the clear call for sound investment understanding and appreciation was very much needed.
Wave of changes
Over the next few years, the FTSE 100 once again changed the makeup of its constituents as more financial companies came in and the weightings of the financial and utilities industries became increasingly dominant. However, it was below the heights of the blue-chip index that new ventures were forming.
The Alternative Investment Market (AIM) was finally launched by an astonishingly reluctant London Stock Exchange. It had hoped to just merge this excellent little initiative from the old Glasgow stock exchange into the main market.
Fortunately, it was foiled. Meanwhile, technological innovations around the idea of a worldwide web started to gain momentum, as the dotcom bubble toook shape.
Over the next five years, enthusiasm for new internet companies gathered a head of steam (wrong technology here, I think). New issues became the fashion of the time as bright ideas from young enthusiasts were put forward: a new generation of companies for the new millennium.
For many investors though, the blur of technological terminology masked the real investment opportunities or, in many cases, the lack of them.
Only one of these minnows - Baltimore Technologies - ever made the FTSE 100, but there were other successes such as and Arm Holdings, and of course a number of new telecom companies, including and .
Another firm famously changed its name: GEC disastrously morphed into Marconi and lost its big bet on the future of technology.
By 1999 a commodity super-cycle was beginning to be talked about. Miners - whose presence in the index has more than doubled since that year - such as , and listed their shares in London.
The banks were a force in the FTSE 100 back then: 11 banks were listed. Now there are five, and the sector's share has shrunk from more than 16% of the list to 13%.
The turn of the century saw a turn in the FTSE again, not only as the sector makeup of the constituents changed, but also as the price of pride before a fall became apparent when the bubble burst.
The FTSE 100 reached 6,930 on 30 December 1999 before collapsing to 3,287 on 12 March 2003. From that nadir, the markets clawed their way back. But, as ever, they seemed destined to abandon one illusion only to adopt another.
Thus we were led on to the financial crisis of 2007-08. The FTSE 100 reached 6,730 on 15 June 2007, only to fall to 3,512 on 3 March 2009.
The resilience of investors and markets has always been a wonder. Despite such setbacks, investors still returned to the market to try to rebuild their investments. Or maybe they didn't. Perhaps the wise ones just ignored it all and rode the markets.
Twin pillars of investing
It's worth remembering the two vital pillars of strength in the market that have saved many an investor and, come to that, many an investment house. The first is time in the market. This is what yields the real wins. Timing the market is a dangerous beast to try to tame.
The second is a result of the first: compounding. The compounding of dividends over time provides the most assured returns over the long run.
Over the past 21 years the FTSE 100 has changed markedly, but the rules of investing have not. The big question for us investors is whether we can learn from our errors or are doomed simply to repeat them.
This article was first published in our special publication 21: Twenty-one years of Interactive Investor. Download your digital copy for free here.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser