A 3-month correction on the S&P 500 or the beginning of the crash? You could hear the B word quite often at the end of the last year. And it was not only Brexit but also bear market…
Doom and gloom, fear among investors about the stock market perspectives in 2019
At the end of 2018, it was very difficult to find optimism among investors. The correction on the markets wiped 20% off the S&P 500 in just 3 months. A lot of people were convinced that it is the beginning of the crash on the stock market. On the Emerging Markets, the prices of companies were falling during all of the year 2018.
The bear market on the Polish stock exchange lasting throughout last year
During the conversations about investing, the ideas for allocation of the money included mostly properties, then gold and bonds or keeping cash. I was still not convinced as having shares in good businesses is giving me the biggest feeling of freedom.
What were the reasons for the generalised pessimism?
Let’s make a list:
- Stock market was going down, 20% correction on the American stock market indices.
- PE ratio for the S&P 500 being almost 20.
- In Europe Brexit coming.
- Trade wars between China and the United States.
- Slowing growth in China.
- Property prices growth slowed down.
- Rising interest rates.
- QT (quantitative tightening) replacing QE (quantitative easing).
- The yield curve being very close to revert meaning that long-term interest rates have fallen below short-term rates, which is considered to be a forecaster of recessions. In short it means that investors have such little faith in the future that they will accept a lower return on their cash over a longer term than over the short term.
- Anaemic growth of European economies.
- Mature business cycle.
I am sure you can add some more points to this list without difficulties.
Looking at the long-term perspective the US market seemed to be overvalued. PE ratio for the S&P 500 was around 19.5. But it is not true that if the market is overvalued, it will fall immediately. We can claim looking at the table below showing PE ratio for the S&P 500 and one-year forward return for the last 10 years that only at the beginning of 2011 and 2012 the market was fairly priced. Of course, I am aware that the S&P 500 will experience a bear market. But I will not try to predict the exact date.
Returns of major indices in this year
The beginning of this year brought relief to stock market investors. The stock markets were growing all around the world. The S&P 500 went up 15.88%, the index of the UK stock market FTSE100 grew 10.88% and Polish WIG went up 5.58%.
My returns and my 2 portfolios
First, let’s look at the structure of my stock market wallet at the beginning of this year:
- 22% in companies on the Warsaw Stock Exchange (Polish stock market),
- 78% in my 2nd portfolio which consists of international stocks (companies outside of Poland):
- 60% in companies in the US,
- 8% in companies in the UK,
- 5.5% investment in China,
- 4.5% in Canada.
Performance of my “Polish” portfolio
Results of my wallet on the Warsaw Stock Exchange in 2019 so far look like this: +19.76% vs +3.90% for the benchmark for the Warsaw Stock Exchange WIG20 and +5.58% for WIG.
Performance of my stocks:
- Playway +44.30%,
- TSGames +43.25%,
- CDRL +24.46%,
- IFirma +25.67%,
- CCC +20.54%,
- Vindexus +7.25%,
- Pekabex -22.48%.
6 out of 7 companies achieved a better return than benchmarks.
Performance of my “Global Markets” portfolio
My results in 2019: +23.27% vs +10.88% (FTSE100 – index of the UK stock market) and +15.88% (S&P500 – index of the US stock market).
And the performance of my stocks:
- Facebook +36.96%,
- Moneysupermarket.com +34.88%,
- Alibaba +34.57%,
- Apple +29.64%,
- Mastercard +27.36%,
- Paypal +26.47%,
- Alphabet +18.11%,
- Glencore +16.08%,
- Cameco +3.88%.
8 out of 9 companies achieved better results than benchmarks.
Obviously, my commodity stocks (Glencore and Cameco) are the laggers in the portfolio. During this year I initiated a small position in a company from the Russian stock market – Gazprom.
Hope for a correction
I am pretty happy with the performance of my holdings at the beginning of this year. I especially enjoy beating indices for the respective stock markets. It seems that my selection process delivers good results. Now I hope to see a correction, so I can add to my positions on the lower levels.
Also, as you see I am back on the blog, and I hope to write regularly in 2019.
Please note I am not a regulated financial advisor and so any help will be non-advisory. If you are unsure of the suitability of any investment you should seek professional financial advice.