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One of the most popular disclaimers in finance is that “past performance is no guarantee of future returns”. This is true and investors shouldn’t blindly invest in a stock simply because it has gone up in the recent past.
However, there is also merit in looking at past events and the impact on the share price to try and forecast the future. Given the moves in Rolls-Royce (LSE:RR) shares in recent years, what could this year offer?
Looking at the past
Over the last year, the stock has fallen by 20%. Over the past five years, this figure is 69%. So when I take a five-year average return, it’s a negative 13.8%.
On the face of it, this doesn’t fill me with confidence that I should be putting £1,000 of my hard-earned money in. If my return for the next year is similar, I won’t be happy. But I also need to understand what has caused this performance slump.
The vast bulk of the share price fall over five years came with the stock market crash in early 2020. Then, as the pandemic really started to grip, Rolls-Royce shares over halved in value in a…
