This investment thing is all about buying shares and holding them for the long term, right? And that means at least 10 years. So how well would I have done if I’d bought Rolls-Royce Holdings (LSE: RR.) shares 10 years ago?
The disappointing answer is that £10k in Rolls-Royce back then would be worth… just £6.9k now.
10 years or 10 minutes?
So much for billionaire investor Warren Buffett and his quote: “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” And for our decade-plus ideas here at The Motley Fool.
Well, hang on. There is a lesson here, but it’s not that buy-and-hold for 10 years is no good.
We should never expect every stock to do well in every decade. No, it’s all about probabilities. The longer we hold our shares, the greater the probability we’ll do well.
That’s based simply on historical statistics. Over the very long term, UK stocks have outperformed other investments in most 10-year periods. Not all, but most.
What to do
So what do we do about it?
My number one rule is… go for diversification. To me, that’s crucial.
I held a bank stock when the 2008 financial crisis hit. But I held only one bank, and because I’d diversified, I suffered a lot less pain.
ISA diversification
So anyone who really has held Rolls-Royce shares for the past 10 years is, I’d wager, probably doing fine if they have them in a well-diversified portfolio.
Over the same decade, Stocks and Shares ISA returns have averaged 9.6% per year. Taken across the whole of the UK, that’s a very diverse set of investments. And it includes all the ISAs that include Rolls-Royce.
So what now?
This is all very well. But what does it tell us about buying Rolls-Royce shares now?
Firstly, it’s a very different company to what it was 10 years ago, after the pandemic took its toll on the aviation business.
But on the upside, Rolls is a lot slimmer and more efficient than it was. And it pulled itself up from the depths far more impressively than I expected.
The future
The truth is, when it comes to buying a stock today, the past doesn’t count for much at all. If we think the future for Rolls is positive, and we like today’s valuation, isn’t that what matters?
A few things make Rolls-Royce shares look attractive to me. It’s mostly the way the company has under-promised and over-delivered.
I’m not so sure about the valuation, though. I can’t help feeling that all of the optimism might be built into today’s price. And if, one quarter, Rolls should under-deliver, might we have a new slump?
If I buy…
I think we could see better buying opportunities in the future. And if we do, it could be time for me to buy.
I’d buy when I think the probabilities are on my side, but in the knowledge that I could still lose money, even over 10 years.
