The best and worst investments of the year

Jan 1, 2014

It was a good year for the American stock market and a bad one for anyone who had invested in gold

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"THEY said I was mad when I took the biggest bet of my life, but one year later my only regret is that I wasn't bolder," said Ian Cowie in The Sunday Times. Selling all the bonds in my pension last December so that I would be 100% invested in shares was reckless. I broke the first rule of investment: "to spread risk". But my conviction that shares were cheap and bonds were expensive turned out to be bang on. "Rising share prices mean my fund has grown by more than a year's salary and I have avoided falling bond values."

"It wasn't hard to make money in 2013, just as long as you were invested in US stocks," said Bloomberg. "Nine out of ten stocks in the S&P 500 are set to end the year in positive territory." And the Dow Jones is at an all-time high. The trick, indeed, was picking the right country, said Tom Stevenson of Fidelity in The Sunday Telegraph. The performances of the world's main indices varied from "exceptional" (Japan) to "indifferent" (Hong Kong), "with all flavours in between". Emerging markets, which suffered turmoil in the summer, haven't had a great time. The FTSE 100 has had "an OK but not spectacular year".

You could have cleaned up in 2013 simply by tracking the right index, said Stevenson; 2014 will be different. The outlook for equity markets is generally positive, assuming monetary policy stays supportive, and tapering "tentative". But though valuations aren't high by historic standards, "they have risen to a level where investors will start asking: ‘Where's the beef?' Careful stock picking will be a better approach than tracking an index." We'll have more on investment opportunities for 2014 in the next issue.

The year's chief losers

It wasn't just bond funds that got clobbered. So did commodities. Of the 18 commodities tracked globally by Bloomberg, the best performer was natural gas (up 18.1%). Having dropped by half since 2008, thanks to a huge boost in production, prices had to come back some time. The worst performer, according to Bloomberg, was corn - down 41% following a record American harvest.

It was a terrible year for gold bugs, said Jennifer Rankin in The Guardian The price of the yellow metal hit $1,189/oz the week before Christmas, following heavy falls in November and December. Having shed more than a quarter of its value in a year, it seems set to chalk up its "first annual fall in value for 13 years". Gold funds performed still worse. All the top holdings in Fidelity Advisor Gold Fund, which owns 112 mining companies, lost money and the portfolio's value (down nearly 50%) dropped almost twice as fast as gold. By contrast "alternative" investments - art, fine wine, rare whisky, and most of all, classic cars - held their own. The Historic Automobile Group Index (HAGI) jumped 39% in 2013.

And the worst individual loser of the year? Probably the Brazilian commodities baron, Eike Batista. Once Brazil's richest man, worth $30bn, he saw his fortune evaporate in 2013 after his oil company OGX filed for bankruptcy, marking the biggest corporate default in Latin American history (which is saying something). His mining company, MMX, hasn't fared much better, said Bloomberg. It was the worst stock on the 2,883-strong FTSE All-World Index, losing 85% of its value.

Weird financial buzzwords

Conversations about finance can seem impenetrable to the uninitiated. But it's easy to keep up once you decipher the more obscure but colourful terminology

Ankle biter. This slang term for a small child is used in finance to describe a small cap investment - a company with a relatively low value or market capitalisation.

Big uglies. Big, older companies, usually in "dirty" industrial sectors such as mining or steel - often overlooked in favour of "cleaner", trendier stocks.

Cockroach theory. The theory that when a company reports bad news to the public, there's often further trouble lurking. It can also refer to industry-wide suspicions: if one subprime lender is going bankrupt (like New Century Financial in 2007), others may follow.

Dead cat bounce. A small rally after a sharp decline in a plummeting share price. As the old investment saying goes: "Even a dead cat will bounce if it is dropped from high enough."

Puke point. Slang for selling an asset that is plummeting. The point at which the investor can no longer stomach the losses and decides to sell.

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