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Record stock market gains? Bah! Humbug

Ed Monk

Ed Monk - Fidelity Personal Investing

Twas the night before Christmas, when all through the house everyone made money on their investments, even a mouse.

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As Christmas arrives, we can now say that 2019 is shaping up to be one of those golden years on which investors look back with misty-eyed fondness. It’s been hard not to make money from shares this year.

2013 was the last blockbuster, when the S&P 500 rose almost 30%, and this year is rivalling that with gains so far of 28%. If it passes that milestone in the few trading days left this year it will be the best calendar 12 months for the main US market since 1997, but please always remember past performance is not a reliable indicator of future returns.

And it’s not just the box-office US, with its roster of rock-star tech names, that has surged. Markets the world over are looking at double-digit gains.

FTSE Russell compiles country and region-specific stock market indices. Its data show the best performer this year to have been the FTSE Russia index, with a total return year-to-date of about 48%. Nowhere else has managed that staggering growth but there are a host of countries where gains have nudged 20% or more.

The UK is sitting on a total return of 18.5%, with North America at 27%, Europe at 21%, Japan at 16.5% and China at 19%. The one notable laggard is India, where gains have only been able to reach 4%.

Looking at those numbers it would be easy to think that 2019 has enjoyed some ‘Goldilocks’ scenario of perfect investing conditions. In fact, the year began with pessimism at a high.

A year ago, I was asked to predict where the FTSE 100 would be now. Back in December 2018 it was down at 6,700 points after a dismal few months and many of the predictions were for further falls. Some even forecast the Footsie would dip below 6,000.

My prediction was of a level in the 7,250-7,500 range, based on the fact that UK valuations looked attractive and that the FTSE 100 was made up mostly of foreign currency-earners which were shielded from the domestic uncertainties facing the UK. With the FTSE 100 at its current level of 7,620, my guess was in fact a little cautious.

Just after making it, almost exactly as the new year started, prices began to rise. Indeed, the timing of the recovery has been perfect to flatter the 2019 calendar year numbers.

Investors, then, will raise a glass this Christmas to the stock market which has performed so handsomely. But as they do, allow me to play Scrooge for a moment.

For the long-term investor these gains are, in part, fictional. They could be real, of course, were you to read this article and then immediately sell out of your assets. But for most of us they are paper profits which can - and most likely will - be undermined by future periods of losses.

This is what long-term investing is about. A great year in markets is there to offset the other years that are not so great, and particularly those occasional but regular years when we all lose. We can only hope that, in aggregate and over long periods, the gains outweigh the losses.

With market levels where they currently are, some profit taking looks inevitable to me. A look at a chart of the S&P 500, where prices are at a record high, is ample evidence that some will now try to time the top of the market.

When it happens, or when some other event knocks markets backwards next year, my advice is to think back to Christmas Eve when the going was good and the gains were high. 2019 has been, like Christmas itself, a feast. We should be happy to live from the leftovers and not grumble too much when lean times arrive, as they surely will.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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