You want to take control…..but can you?

“The Stock Market is a device for transferring money from the Impatient to the Patient” (Warren Buffet)

 

Happy New Year Everyone.

Like many around the world I’m sure your celebrations will have been muted with the Covid Pandemic still causing terrible disruption in many parts. But 2020 is now over and a look at the market performances over the last 12 months shows that not all that has happened has been negative…data being

Dec 2020

S&P 500 +3.7% +16.2%
Nikkei +2.5% +16.0%
FTSE +3.1%% -14.3%
MSCI W +4.1% +14.1%
SSE +2.4% +13.9%
EM50 +6.5% +27.3%

So with the exception of the FTSE, all other major markets up, Emerging Markets being stand out….

Currency data…USD falling across the board as follows

Dec YTD

GBP -2.0% -2.7%
EUR -2.0% -8.8%
JPY -0.9% -5.1%
AUD -4.0% -8.9%
CNY -0.8% -6.4%

I was looking back at my Market Update this time last year. As is often the case, it mentioned how futile making predictions is, as no one really knows what is around the corner.

Little did I know when writing that update, Covid 19 was a couple of weeks away from rearing it’s ugly head. A couple of months later it had turned our world into a very different place, clearly illustrating my thoughts on predictions.

Yet in spite of the disruption that we are all experiencing right now, the markets have remained steady, with the usual “Santa Rally” happening as all major indices edge their way up in December.

Over the 12 months, markets did well. The S&P having its fifth best year this century and over 16% return. Profits that would please all but the most ambitious of investors.

It wasn’t all positive, those whose portfolios are FTSE based will have struggled but that’s because major components such as oil giants BP and Royal Dutch were down over 40%, and other British stalwarts like British Airways and Rolls Royce down 60% and 50% respectively due to their businesses being very correlated to travel, which was reduced to almost nil during the year.

The above highlights why a passive approach and buying trackers on the FTSE doesn’t always work. Regular readers will know that I find traditional energy companies like the aforementioned oil giants impossible to buy for a long term strategy, going with renewables instead in this space.

The companies who benefitted from the unique year which just passed tended to be in Healthcare and Technology, the massive weighting of tech companies on the S&P (over 35%) being the reason for this market’s sound performance in 2020.

The return of 16% with a passive play could have been doubled or even trebled with more sector specific investing, The S&P 500 is today 63% higher than it’s low point on 20th March. With my views on predictions, I would never advocate trying to pick bottoms of markets but those who operate a Dollar Cost Averaging strategy by investing on regular occasions would have definitely benefitted from the great value March, April and May had to offer.

Despite the volatility of the last year, the end results are good and once again prove all the great investors advice on patience and not panicking being the key to making money. In a year where panic seemed to be the name of the game, fair play if you were able to keep invested, as Buffet, Munger, Lynch et al no doubt did – you saw the rewards.

So time to take the profits and run? Markets too high versus real world economies…? Of course I do not know the answer to these questions, nor does anyone else.

What we do know though is that markets dislike uncertainty and like certainty. Ten months ago we were in a situation where uncertainty was at its highest since World War II. No one knew what this pandemic meant or what was going to happen or how long it will last. Whilst we cannot comprehensively answer all the above, we do know we now have a vaccine. . This means we will return to normal. This creates certainty, what markets like.

Couple this with the political landscape, US Elections done, Brexit finally getting there, China back to normal, uncertainty is generally lower than it has been for some time…..markets like this so why not take advantage.

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