Good riddance 2008. As 2009 kicks into gear, Bruce Jackson looks at his 5 investing resolutions for the year ahead. Number 1 is to not lose any more money!
Congratulations. Or maybe that should be commiserations. You’ve just lived through the worst investing year since 1974.
The FTSE 100 lost 31% in 2008, finishing the year at 4,434. It was the blue-chip index’s worst annual fall since it was created in 1984, comfortably beating its previous biggest yearly loss of 24.5% in 2002. The FTSE All Share index fell 33% over the year, its worst annual fall since losing 55% in 1974.
There was no place to hide in 2008. Big companies like BT Group (LSE: BT.A) and Prudential (LSE: PRU) were hammered. Small companies like Johnson Press (LSE: JPR) and Topps Tiles (LSE: TPT) saw their share prices obliterated. Banks like Royal Bank of Scotland (LSE: RBS), retailers like Marks & Spencer (LSE: MKS) and miners like Rio Tinto (LSE: RIO) weren’t spared either. It was a horror year. Good riddance.
Unfortunately, 2009 hasn’t started too well either. After a post new-year rally, the FTSE 100 index has now dropped for a 4th day in row. The hangovers have obviously kicked in a little late this year, proving once again that you can party as long as you like, but you ultimately can’t avoid the pain that inevitably follows.
The Painful Consequences Of Binge Spending
The problem is that the whole globe has been partying for 5 solid years, binge borrowing and binge spending. Many of us have got big new plasma TVs, big new cars, little but expensive iPhones, and of course, we need a big new house to, err, house all our ‘treasured’ new belongings.
But now the music has stopped, and boy, have the consequences been painful.
Economically, things aren’t looking too clever either. House prices are falling, and will fall further. Unemployment has reached 1.9 million people, its highest since 1997, coincidentally the year Labour came back into power. (Or perhaps it’s not a coincidence – comments below please.) Economists expect unemployment to peak around 3 million towards the end of this year. I think it could be even higher, and peak in 2010.
My Investing Resolutions
I’m just back from holiday, so am a bit late with these resolutions. Oh well, better late then never…
Resolution #1
Capital preservation.
Like most stock market investors, my portfolio took a hammering in 2008, as did my self managed pension fund. Sure, some share prices went down because everything else went down, but others went down because they were poor companies operating in competitive industries, and often with high levels of debt. I will be avoiding all highly indebted companies, all speculative companies, and companies in sectors like retail and property. I want to make sure I preserve the capital I’ve got invested in the stock market. I don’t want another 2008.
Resolution #2
The usual eat less, drink less, exercise more, lose weight, remain healthy, etc. etc. As I started 2008 with my ankle in plaster, courtesy of a Christmas Day playground accident (not my fault…honest) I’m already ahead in 2009. As for the other resolutions, let’s just say they are a work in progress.
Resolution #3
Remain calm.
I will never forget October 2008. For a few fateful days, it felt like the whole financial system was going to implode. Not only were share prices being slaughtered, but even worse, you didn’t know if any of your money was safe in any bank anywhere in the world. Yikes.
I don’t think we’ll see anything like that again in 2009, or again in my lifetime. It was a stressful time. I admit I was struggling to sleep. I was stressed. But there was nothing I could do about it, nothing little old me could do to fix the situation. My worrying certainly wasn’t going to solve the global financial crisis. In 2009, I will remain calm, and leave the worrying to others.
Resolution #4
Remain patient.
I think 2009 will offer stock market investors some compelling bargains. There is almost certainly going to be a period where the market goes through one of its irrational sell-offs, with everyone charging for the doors as share prices tank.
It is times like those when patient investors can pick up high quality companies trading at insanely cheap prices. The key is to have your eye on candidates now, so you are ready to pounce when the opportunity arises.
Resolution #5
Create a watch-list of my favourite companies, now.
As mentioned above, there will be some great bargains in 2009. But, if you’re not ready to buy when all others are selling, the opportunity will pass you by. I resolve to make a list of my favourite companies now, so that I’m prepared to pounce.
Our chief stock picking analyst Maynard Paton is doing exactly that over at The Motley Fool’s Champion Shares stock recommendation service. The list of companies he is watching right now is impressive in both its number and its quality.
In his most recent Champion Shares update, he lists no fewer than 18 cash-rich mid-cap companies he is confident will not only survive the credit crunch, but ultimately prosper. You can take out a 30-day free trial to get full access to Maynard’s watch list, and to all his other research.
So there you have it. My 4 stock market resolutions for 2009, plus the obligatory ‘sin’ resolution thrown in for good measure. Above all, I wish you happy investing in 2009. Surely it can’t be any worse than 2008, can it??
More: The Simplest Investing Strategy | Reasons To Be Cheerful
> Bruce Jackson doesn’t have an interest in any of the companies mentioned in this article.
