Like many investors, 2017 was good to my own portfolio, even if – admittedly – a decent proportion of this success must be attributed to the rise in sentiment towards equities in general. My bullish call on robotic automation software provider Blue Prism, online musical instrument retailer Gear4music and gaming services business Keywords Studios at the end of 2016 proved very successful with all three enjoying huge gains. Owning a slice of graphene supplier Versarien since early November hasn’t done me any harm either.
As you may have gathered, I have a preference for companies lower down the market spectrum as opposed to FTSE 100 giants. Chosen wisely, the former offer the potential for greater capital growth over time thanks to receiving less attention from institutional investors in their formative years.
While I can’t tell you where to put your money in 2018 — that depends on a thorough and unflinching analysis of your own financial goals, risk tolerance and investing horizon — I can tell you my strategy for this year.
Proceeding with caution
If someone were to ask whether I was a market bull or bear at the current time, it would probably be the latter. While recent economic data suggests everything is going really-rather-swimmingly, I’m growing increasingly concerned by the calmness in equities and prices in general. A lack of volatility can be a recipe for complacency. Complacency can lead to unnecessary risk-taking. Unnecessary risk-taking can lead to…well, you get the picture. That’s not to say that I won’t be investing anywhere in 2018, merely that I have an urge to become somewhat more defensive and perhaps start banking a bit of profit. Growth-at-unreasonable-price feels so 2017.
With Brexit on the horizon, I think things could get a lot more difficult for some UK businesses, hence my attraction to insolvency firm Begbies Traynor. A less buoyant economy could also mean the possibility of job losses. For this reason, small-cap lender Morses Club remains on my watchlist. I may also add to my position in pawnbroker Ramsdens Holdings — a company that should appeal to growth and income hunters. Waste collector Biffa and funeral services provider Dignity also both have defensive qualities I’m looking for.
While no one knows quite where Bitcoin will go next, I remain cautious. Should the cryptocurrency mania come to a sudden end — and the rise in the number of dubious initial coin offerings (ICOs) over recent months suggests it might — I can see investors piling into traditionally safe assets such as gold. As such, buying an ETF tracking the price of the precious metal is something I’m considering.
Another development I’m attempting to position myself for is the growing popularity of electric vehicles. For this reason, I may put more money into copper play Asiamet Resources and nickel miner Horizonte Minerals. While only risk-tolerant investors need apply, I can see demand for both metals rising considerably over the next few years.
Of course, no one knows exactly how 2018 will play out. That’s why the most sensible approach to investing in individual stocks is always to remain diversified. Holding 20 or so companies operating in different industries in different parts of the world might be less exciting than throwing all your cash at the next ‘guaranteed winner‘, but it does ensure you’ll enter 2019 with at least some of your wealth intact.
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Paul Summers owns shares in Blue Prism, Gear4music, Keywords Studios, Versarien, Asiamet Resources, Horizonte Minerals and Ramsdens Holdings. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.