Well, it’s been a great last month for UK stockmarket investors. At the beginning of the year I predicted at the stock market would be up this year. The reasoning was fairly simple: the stock market had been down over 2018 and valuations were reasonable.
Actually, I should probably have been more cautious. In rougher times over the 2000’s, the stock market has been down two times in a row. It then surged in the third year. From memory, it is more usual to be down then up, rather than down twice and up once. Falling twice in a row seemed to be during a period of significant upheaval, though.
The Footsie is up 12% this year, a rather nice return for once. Trailing PE is 16.8 according to Stockopedia, making it a little above average. Things are “too average” for me to make any prediction for how the market will fare in 2020. I do feel we’ve had something of a last-minute ascent in 2019, though, so I am anticipating a downturn in January, as things have gone too fast, too furious.
I was disappointed in my performance for 2018, where my portfolio was down about 19%. Ouch! Fortunately I did gangbusters in 2019, being up around 38%. Woohoo!
Although it’s always frustrating to underperform the market, engendering feelings of self-doubt, I generally find that a bad year switches into a great one over the subsequent year. So, despite all the self-doubts and disappointments, it pays to keep the faith and keep on keeping on.
My investing approach in 2020 will be even simpler than in previous years, I think. Firstly, I will, with exceptions, only try to deal monthly. I’ll be looking for reasons not to sell. If the stock is still part of a Stockopedia screen that does well, I will keep the share. If the share is failing to look good quantitatively, then I will switch to one that does. I plan to adopt a simple approach: buy something in Stockopedia’s Screen of Screens that has a Stock Rank in the 90’s, and good dividend.
During my cleanout of old papers, I happened to see some notes I made about Richard Beddard and his stock picks from around 2018. Although I haven’t done a comparison against the index, I feel I don’t have to. His picks have performed “rather well”, shall we say. The worst performer was down around 40%, with a couple more down around the 20% mark. However, the winners substantially outnumbered the losers, and many of them more than doubled. So the aggregate return would have been excellent. It is well worth listening to what he has to say. You can find his latest picks, from November, here.
Well, that about all I have to say for this year. I wish you all a happy and prosperous 2020.
Stay safe out there.
Update 1: Just now I came across an interesting article from December 2018 on Stockopedia about how stock markets perform in the year following a decline. Average returns on UK and USA markets were about the same. I had expected that US markets would have been generally better, given what we’ve seen of the US markets since 2000. There is more data for the US markets, though, and they might have included some exceptional periods. So the data might not be directly comparable.
Another interesting fact is that US markets were much more likely to rebound after a strong year. In 80% of the cases, the market was up after a down year. The UK markets were more variable, with only a 56% chance of being up after a down year. So you are likely to have longer stretches of down years in the UK market than in the US.
I’ll quote the two snippets they took from a couple of subscribers:
I’ve decided to sit out the market for the next year or two – I’ve a feeling a very large bear market may be on the way.
I don’t see much opportunity for investment currently that does not give a lot of worry about my capital.
This only goes to prove that you have to be careful about your feelings. If I had sat out 2019, I would have missed out on a huge gain. It’s not the biggest gain I’ve had in a year, but it is close.
And here’s the thing. If anything, when the markets are fearful, I tend to be more sanguine. Talk of “uncertainty” and turmoil actually make me feel relieved. Why? Because I then know that the market has its eye on risk. And when it has its eye on risk, it tends not to overpay and do stupid things.
That’s why I wasn’t really all that concerned about Brexit. I knew that the market had reigned in its enthusiasm, and I was likely to get stung.
It’s when you have “Goldilocks Economies” that you really need to worry.
I am now more firmly convinced than ever that economists know jack shit about anything. Despite their many public shortcomings, everyone still seems to lend them credence.
Like Brexit. Economists were forecasting doom and gloom if the UK left the EU. Politicians talked of the EU “bonus” that they would spend if the UK stayed in the EU. I walked past my dad the other day. He was watching the news. On it, someone was talking about how the economists had come up with their forecasts. One assumption was that we would have to pay the same price for our drugs as the Americans, which were over twice as expensive.
As I walked past I was thinking “you know, it really is all just an assumption that we would have to pay American prices for our drugs.” It all became perfectly clear. The economists had put together a doom-and-gloom scenario in which, surprise surprise, we’d be worse off leaving the EU. Well, yeah, if you assume the sky will fall, then things will inevitably look pretty bleak. But these were unwarranted assumptions! They basically have no idea how things will actually turn out.
Never never take economists seriously. Their only use is to act as a contrarian signal, if anything.