Last year I began a tradition on the Dividend Ninja with the Ninja’s Year In Review: 2012. At the end of 2012, according to the Mayan Long-Count Calendar, the world was going to end (literally). In addition, the media-spun Fiscal Cliff was destined to throw the United States and entire world into a global recession. Of course these events never transpired.
The world did not end, and the United States as well as most of the world’s economies, continued to prosper. In fact, global stock markets continued to soar in 2013 with U.S. markets hitting record highs. If there was anything notable about 2013, it was the widespread talk about topped-out markets and looming bubbles.
Soaring Markets and Bubble Talk
North American markets did exceptionally well, and continued to rally throughout 2013. The political wrangling in Washington wasn’t enough to shake this bull-run.
For the year ending 2013, The S&P 500 closed at 1848, beating both its 5 and 10 year highs. That gave the S&P 500 a total return of 29.60% for the year.1
The TSX closed to a 2 year high of 13,621 for the year ending 2013. But this was shy of its record-high of 14,984 on May 15th, 2008. That gave the TSX a modest return of 9.55% for the year. 2 Just goes to show that going global for higher returns isn’t such a bad idea after all.
Most stock markets around the world had substantial gains in 2013, and the trend looks like it will continue into 2014.
Not surprisingly, there was much talk around the personal finance and investing blogs about topped out markets and looming bubbles. This was a question staff writer Ben Carlson addressed in his recent post, Is the Stock Market in a Bubble?
Ben wrote in his post:
“Fundamentals aren’t so stretched right now that continued growth can’t justify today’s prices… Markets can be very unforgiving. It’s best to stay humble. I could be wrong and we very well could be in a bubble and see a crash in the future. Either way, it’s best to not make your investment decisions strictly based on whether or not you think something is in a bubble. “
Those investors who sold their equities in 2013, not only lost-out on the massive gains that followed, they also received less than a 1% return for holding cash. Holding cash and waiting for a market correction didn’t fare much better either. Both strategies missed out on both the market gains and dividend income. Staying fully invested was the key to making money in 2013.
Award winning author Andrew Hallam had this to say in Millionaire Teacher, quoting self-made billionaire Kenneth Fischer:
“Never forget how fast a market moves. Your annual return can come from just a few big moves. Do you know which days those will be? I sure don’t and I’ve been managing money for a third of a century.” 3
The takeaway: No one can predict the market. Always stay fully invested!
The U.S. Government Shutdown
In 2012, the Fiscal Cliff along with all its media hype, put some investors into a tailspin. There were many a dire prediction of U.S. economic collapse. For bargain hunting investors who were holding cash, the Fiscal Cliff turned out be nothing more than a fiscal dud. There was no market correction, and markets continued their march onwards to higher levels.
In 2013 it was the same scenario all over again with the U.S. Government shutdown in October. Some investors who got nervous sold their stocks, and others held cash. Of course the government shutdown did not cause a market collapse. Ironically the markets closed higher on the day of the shutdown.
That’s not to say that political wrangling and events in Washington didn’t impact people’s lives. According to Wikipedia, the October 2013 Government shutdown From October 1 through 16, 2013 was the third longest government shutdown4. Many who were relying on a government paycheque or government income were directly impacted. There were also concerns and much stress caused, for those families working with companies relying on government contracts.
The takeaway: Tune out the noise, and stick with the plan!
The Twitter IPO
When it comes to Tech IPO’s (Initial Public Offerings), investors can’t seem to get enough. Reason and valuations get thrown out the door, with investors willing to pay any price to get a piece of the action.
In 2012 it was the infamous Facebook IPO, and in 2013 it was The Twitter IPO. Twitter was essentially the last social media giant left to invest in, although a fraction the market-cap and distribution of Facebook.
Twitter had its IPO day on Thursday November 7th, with shares closing at $44.90 USD per share, up 72.6% from the $26 IPO price (retail investors paid $30 to $40+ for their shares). The Twitter IPO went a lot smoother than Facebook’s IPO last year. But the future for Twitter is far from anything but certain.
Here was what I wrote in my post about Twitter, and its fundamentals:
“Looking at the fundamentals, Twitter is hoping to raise $1 billion dollars through the IPO. According to a couple of articles in the Globe and Mail (referenced below), the fundamentals for Twitter are far from pretty. Twitter has never generated a profit, and in the first six months of 2013 posted a $69.3 million dollar loss. In addition it has acquired a net deficit (that means debt) of over $418.6 million dollars… When you start to peel off the glitz there really isn’t a lot under the Twitter hood, other than its name and monthly users.”
(please see original post for references to facts and figures)
For some reason, investors love IPO’s, even with a company that hasn’t even turned a profit and has piled on debt. As staff writer Ben Carlson posted in a comment, “Better to wait these things out and leave it to the speculators.” 5
The takeaway: Don’t get caught up in the hype!
Happy New Year everyone!
1. Returns from Standard & Poor’s Indices, S&P 500.
2. Returns from Standard & Poor’s Indices, S&P/TSX Composite [CAD].
3. Andrew Hallam in Millionaire Teacher (page 66) quoting Kenneth Fischer.
4. United States federal government shutdown of 2013, referenced from Wikipedia.
5. Comment from Ben Carlson, in Should You Buy Twitter? The Dividend Ninja.