Recently I’ve been writing about the FTSE 100 stock crowned the UK’s best performer over the last 40 years. That was Relx, the scientific publisher.
But there are two others that could also have returned incredible gains. With a couple of set-and-forget investments of £1,000, I could have enjoyed life-changing wealth.
The Big Smoke
An investment of £1,000 into British American Tobacco (LSE:BATS) in 1984 would be worth over £330,000 today, with all dividends reinvested.
There are positives and negatives here.
Today it pays a 10% dividend yield. But the share price has crashed 56% since 2017.
Its earnings per share, the most common measure of profitability, are expected to rise from 350p to 393p in 2025. And the FTSE 100 company says it will push dividends higher, to 254p by 2025.
But buying into an industry in structural decline doesn’t make much sense to me. In 1984, around 35% of men and women in the UK smoked cigarettes. Those numbers have been falling sharply in recent years. As of 2023, data shows that figure has plummeted to 12.9%.
The same investment into Rio Tinto (LSE:RIO) in 1984 would have generated returns of £301,740. Again, that’s by holding long term and reinvesting every dividend payment into more shares.
The mining giant has been a controversial pick for investors due to its climate issues over the years. A quick Google search will reveal these faster than I could recount them here.
Still, it expects to grow its earnings per share and its dividend faster and higher than the tobacco company.
The business expects to plump up today’s 5.9% yield to 7.1% by 2025. It sees earnings per share a whopping 34% higher over the next two years, too.
There appears to be growing potential from its new iron ore mine in Simandou, Guinea.
More recently it has switched its Australian operations to using renewable energy from the country’s largest solar farm in Queensland.
Timing vs time in the market
So what should we learn?
Picking a selection of FTSE 100 stocks and holding them, while reinvesting dividends, can produce great wealth over the long term.
And my focus should not be on buying shares at the perfect time, but my total time in the market.
Take, for example, this advice from Nick Murray. His may not be a name everyone instantly recognises. But his book, Simple Wealth, Inevitable Wealth, has sold over a quarter of a million copies.
“Time in the market is your greatest natural advantage”, Murray wrote.
Whereas timing the market — only buying stocks at their absolute lowest, or selling at their absolute highest?
To do this, I’d need to know exactly what will happen in the future. And be able to predict precisely how all the other investors in the market will react.
Attempting it is a fool’s game. It’s costly, and time-consuming. Not to mention stressful. And I’ve never met anyone who can do it consistently.
The biggest lesson to learn is not about picking the perfect FTSE 100 stock.
If I can learn to trust that time is the engine of compounding gains? Then the passage of time becomes my greatest advantage.
