To me investing in FTSE 100 shares is a marathon, not a quick dash. For most investors, the finish line would be retirement, possibly decades away.
Dreaming of and running after overnight gains rather than stable performances over the long haul is not the easiest way to secure a financially safe retirement. So I would urge our readers not to worry too much about daily price fluctuations in their portfolios. Instead, do due diligence on the companies you are interested in. It is similar to preparing the mind and the body to run a marathon.
We are investors, not speculators
Share prices fluctuate daily and this volatility affects an investor’s sentiment. For example, when the price of a share falls, you may panic. The more you panic, the more uneasy you feel, the more likely you are to throw in the towel and sell that share at a loss. But in many cases, shares of good companies will rebound from their short-term lows.
Newcomers to investing may want the shares they have just bought to go up immediately. Many people dream of buying stocks today whose prices soar in a few days. But this is not investing, it is speculating.
When share prices rebound, unprepared investors may end up buying the same firms at a price higher than they previously sold. This would be an example of ‘high buy and low sell’. And it is definitely not a good way to invest. Instead, be disciplined and patient to reap the results over the long run, again, just as a marathon contestant would.
Let’s look at an example
One of my favourite pharma stocks is FTSE 100 giant GlaxoSmithKline (LSE: GSK). Amid the recent volatile market conditions, I believe that it makes sense to consider buying shares in defensive industries such as healthcare.
In its latest quarterly update, the group reported solid year-on-year revenue growth of 7%. Year-to-date, the stock is up about 10%. Many analysts regard GSK’s vaccine franchise, including its shingles vaccine Shingrix, as a great success story.
The company has also recently launched an important joint venture with another pharma heavyweight, Pfizer, to form the world’s largest consumer healthcare company. GSK will now be able to distribute its top-selling consumer brands more efficiently.
However, the company’s share price increase in 2019 has not been uniform. If you had bought into GSK shares on 9 January, you would have paid about 1,537p per share. Then on 28 January, you might have become nervous as the share price had hit 1,436p.
At that point, if you had decided that this healthcare company was possibly not a keeper, then you would have missed the up move that has now taken the share price to about 1,720p.
If you had stayed the course, you would have seen your investment bring close to a double-digit return so far in the year. And you’d be enjoying a dividend yield of about 4.8%.
The bottom line
At the start of 2019, there were possibly many investors in GSK shares, just as on the starting line of a marathon, there are many runners. Not many in the markets or the marathon would be disciplined enough to cross the finish line. As long-term investors, we need to learn to control our emotions rationally.