2019’s biggest lessons for investors

From the US/China trade spat to Brexit-related shenanigans, it’s fair to say that 2019 has been far from uneventful in the markets (and there’s still the general election to come). Here are what I consider to be the biggest lessons for investors over the last year. 

1. What goes up…

Thanks to another 12 months of political squabbling, the performance of the FTSE 100 over the year to date have been decent but hardly spectacular (up 7%). Across the pond, however, it’s been another cracking year with the S&P 500 soaring 25% and breaking more records on the way.

I doubt many would have predicted this at the start of 2019, especially as the US market was already priced at levels only seen twice before — prior to the Wall Street Crash of 1929 and before the dotcom bust in 2000. 

Something will give sooner or later, of course, but that’s not to say the market won’t continue going up between now and then. Indeed, 2020 could be another great one for those invested in the world’s biggest economy.

What can we conclude? Simply that market timing is very difficult, if not impossible, to do. Even top fund manager Terry Smith suggests it’s probably best not to try.

If being fully invested at all times feels hard, however, try drip-feeding your money instead. 

2. Adapt or die

Every year brings its fair share of market casualties. Some companies fall out of favour only to bounce back to form eventually. Others fold completely. 

Arguably the most high-profile example of the latter in 2019 has been package holiday operator Thomas Cook. While poor weather and our EU departure were contributing factors, it was the company’s failure to realise that more of us were arranging our own holidays online until too late that sounded its death knell.

The lesson from the above is that it’s absolutely vital for every retail investor to ensure they only back companies that are demonstrating a willingness to adapt to changing attitudes and behaviours. Since individual stocks tend to be far riskier than diversified funds, you should also only back them with money you can afford to lose. Having said this…

3. Watch for drift

Arguably the biggest shock (and subsequently, the most painful lesson) for investors in 2019 has been the suspension and eventual closure of Neil Woodford’s Equity Income Fund. 

A toxic mixture of bad news and strategy drift has left the former Invesco man’s reputation in tatters (not helped by his decision to continue charging fees while the fund was suspended) and hundreds of thousands of retail investors licking their wounds. As things stand, no one knows exactly how much money the latter will lose by the time it’s wound up. 

Perhaps the learning point from this still-to-be-concluded sorry tale is that no one — not even an experienced fund manager — can guarantee you anything in the market. The only thing that’s certain is that they expect to be paid for trying.

Woodford’s fall from grace also shows the importance of monitoring whether your chosen manager’s actions are in accordance with their fund’s overall strategy, more so than how each and every constituent of their fund is doing.

If all this sounds like too much trouble, then switching to a passive approach, either partly or fully, and buying exchange-traded funds that ‘merely’ track the returns of indices might be more appropriate.