I started 2015 with great hopes for a terrific year in the stock market. After all, it’s the fifth year of the decade, which historically is the best performing year per decade.
Further, 2015 is the year before a presidential election, another plus for stock price performance. Thirdly, central banks around the world are adding monetary stimulus to the economic mix which has created a bull market since the lows of 2008-2009.
The stage was set for an optimal year to be invested in stocks, but at some point the markets ran off of the expected track and left us with a pretty blah year. The stock market does not always follow its historical patterns.
Of the major averages, only the NASDAQ managed to move higher, but not by much. The S&P 500 Average and the S&P mid-cap and small-cap averages ended lower, with the Dow Jones Industrial Average down and the New York Stock Exchange closing lower as of last Friday. The Value Line Geometric Average performed the worst, indicating that most stocks are ending year lower in price.
Average Change since 12-31-2014**
NASDAQ +3.95%
S&P 500 Average -2.59%
S&P Mid-Cap Average -4.66%
S&P Small Cap Average -5.31%
Dow Jones Industrials -3.90%
NYSE Stock Average -8.04%
Value Line Geometric Stock Average -11.71%
**source: MarketSmith & StockCharts.com
Based on these market averages even a good portfolio would have lost some ground in 2015. While there were areas that performed well in the markets, most stocks declined in price.
Now before you decide to take it out on your investment advisor, keep in mind that the smartest portfolio managers can rarely move against the markets. So it might be better to lower your expectations for your portfolio’s performance in 2015. There is little point to changing advisors to one who beat the markets in 2015, because it is unlikely that they would produce the same result in 2016. Psychologists call this practice of changing advisors each year the error of “recency bias”. In predicting future performance, picking the best performers from last year rarely will get you another exceptional performance.
The main job of an investment advisor is to preserve your accumulated capital so that you never lose so much money that you are taken out of the game. With this thought in mind you can start talking about relative performances. My performance standard is to beat the S&P 500 and the Value Line Geometric stock average, while minimizing losses in down markets. I don’t always make my performance standard, but over the years we have had good performance. Of course, historical performance is no guarantee of future returns. You still must pay constant attention.
What is in store for 2016? Going back to 1881, each decade’s sixth year has been up an average of 6.8 percent (vs fifth years’ average of 28.3 percent). Presidential election years are the second best of the four-year presidential election cycle, averaging a plus 5.8 percent. So I have grounds to be optimistic for good investment results in 2016. This is all tempered with the notion that Fed Chairperson Yellen just began a tightening cycle in monetary policy here in the United States, a generally negative indicator for year-ahead stock market performance.
Of course, nobody knows exactly how it will turn out next year. So we watch the averages and lighten up on investments when averages are moving lower and add to portfolios if the averages are moving in an upward direction. This isn’t rocket science; it is just following the trends and socking away nice profits when you get them. It bears noting that some investors have managed to find both growth and dividends in the realm of mutual funds. Sometimes investments other than stocks offer potential for growth.
Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.
