Some lessons I learned in 2014

By Vivian Atud

As part of a Christmas present to myself I decided to set aside time to evaluate the past 12 months and to ask serious questions about some of the lessons I have learned from the markets. I reflected on missed opportunities, highlight successful practices, and strive to be a better overall investor. Looking at the past year’s lessons helps to refresh my memory and prepare for a profitable outcome in 2015.

Below are some of the lessons I will like to share when I look at the market, economy, and investor psychology this year.

  1. It is futile to fight the market trend

Against all odds, the JSE stocks, bonds and commodities have done quite well. May speculators were looking out for a reversal in trend and poor market performance but this did not stop the all share index from gaining 10.17 percent in the past 12 months.

all share 12 months

Defiling all logic given the economic slowdown in 2014 and the economy only expected to grow at 1.4 percent despite initial forecast of over 3 percent in January 2014- the stock market kept the momentum. Market dynamics don’t always follow local economic logic. Various investors had their investment strategies set out- many thought stocks were going to fall given economic reality, the bonds were going to rally, together with commodities. However, it was challenging to fight the existing price momentum – holding cash was also not a great alternative as it meant lower returns and missed opportunities.

Investment Guru Benjamin Graham in his all-time best seller “the Intelligent Investor” said that unlike in other fields where past behavior can be easily used to predict future behavior- the investment market is different and sometimes luck and being in the market at the right time counts more than your past experience. Many investors in 2014 found themselves in positions where they could not get what they wanted. Mindful of that, it was prudent to keep an objective and balanced perspective that realizes the potential for riding the existing trends even higher. Investors who are worried about losses could always use stop loss and other risks management mechanisms.

  1. Volatility will around for a while

Who would have predicted a fall of 1.15 percent for the all share index in the last three months of 2014? The market behaviour for the last part of 2014 from high in September to low in October and high in November and then low in December is clear indication that volatility will be around for a while.

all share december

What can we read out of this? The markets might continue to be more volatile in 2015. The US FED might increase interest rates in 2015 and that will add more volatility into the market.

Intelligent investors should use volatility to their advantage by having some cash on the sidelines to put to work when markets give you an opportunity.

  1. Get a positive mindset- the first step to successful investing.

Psychologist will tell us that positivity is a great asset in every human endeavor. This is also true for investing. When you focus on your past errors you will get nowhere in investing. Invest to succeed and don’t focus on I don’t want to lose money. Do not misinterpret this to mean that you don’t need to guard against risks. Far from it, my investment advice always include having a sound risks management plan in place. Your risks management plan should help you move forward and adjust your portfolio appropriately and not enslave you to focus on errors.

Conclusion

I am excited about 2015. I see it as a year that will be full of great opportunities for investing yet not without challenges. These are still early days and we would not be able to see through the challenges at this moment.  However, proper investment strategy and discipline will distinguish winners from losers in 2015. There is need for flexibility and openness to new ideas as we look forward to another great year in 2015- keep learning and investing.

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