2014 — a year of ups, and downs.
I’ve had some shockers.
Buru Energy (ASX: BRU) down over 75% in 2014.
My small Canadian-quoted oil producer (which remains nameless given I want the flexibility to add to my position) down over 50% in 2014.
3D Systems (NYSE: DDD), the company formerly known as my “3D printing wonder stock”, down 66% in 2014.
During 2014, I sold out of my position in rare earths miner Lynas Corp (ASX: LYC), booking a total loss of 85%.
Yet my portfolio has had a nicely positive year, up around 14%, soundly beating the All Ordinaries (INDEXASX:XAO) Index.
(I’m not talking about my Self Managed Super Fund (SMSF) here — it had a stand-out year, up around 24%. I had to pinch myself. More on it in the new year.)
Seems impossible, huh, especially given the Canadian oil producer and 3D Systems were two of my larger positions at the start of 2014?
Diversification makes up for many sins.
As does a plunging Aussie dollar and a portfolio chock full of high quality US stocks.
My Facebook shares continue to make every post a winner. Warren Buffett’s Berkshire Hathaway, already my largest position, is up close to 30% in 2014.
Investing overseas is suddenly in vogue.
Never under-estimate an investor’s ability to jump on a bandwagon. But on this occasion, they may be jumping on while the wagon still has room to run.
Let me see…
— Economists are falling over themselves to predict an even lower Aussie dollar in the year ahead, with even Glenn Stevens saying he’d like to see it at US75 cents.
— The ASX has had a flat year. By comparison, the Dow has just jumped through 18,000 and is up 9% in 2014.
— The US economy is on fire — growing at 5%, while unemployment is falling and interest rates are still at zero per cent. By comparison, the Aussie economy is heading in almost the opposite direction.
Roll on the bandwagon, my portfolio, and yours too.
Speaking of you, a little known fact about Motley Fool Share Advisor, our flagship membership-only stock picking service, is that each month, as a bonus, as well as an ASX stock pick, we recommend one US-quoted stock to our thousands of members.
How we doing? The average return for all our US-quoted share recommendations is a gain of 36%, double the return of the market. Yankee doodle dandy.
Regular readers of this Motley Fool Take Stock email will know I’ve long been bearish on the Aussie dollar, and long been bullish on quality US-quoted stocks.
The stance has more than saved my portfolio’s bacon in 2014.
Much more. So much more that “FX translation” — the currency gain made when converting my US shares back into Aussie dollars — has been one of my biggest winners in 2014.
Luck, or good management?
Luck on the timing.
Good management on stock selection, although I’m not so arrogant to admit some luck was involved too.
Berkshire Hathaway, a $US360 billion monster, gaining 30% in 2014? That’s luck, and WON’T be repeated in 2015.
At this point, let me make it abundantly clear this foreign exchange (FX) gain did NOT come about through currency trading. FX trading is a one-way ticket to the poor house.
I’m a long-term equity investor, not some high frequency trader, glued to his three monitors, each one flashing multiple buy and sell signals, simultaneously.
Life is seriously too short… plus, I can make good money just doing nothing but holding shares in great companies. It comes with much less stress, too, as you can imagine.
As I look forward to 2015, I’m looking more locally.
— I see opportunity in beaten down ASX oil and energy stocks. Not now, but when panic really hits and there’s blood on the streets.
— I see opportunity in ASX dividend paying stocks, especially the fully franked variety. With local interest rates almost certain NOT to rise in 2015, by comparison to term deposits, the case for investing in dividend paying stocks is compelling.
I’m busy putting my money where my mouth is… yesterday I bought one stock from the Motley Fool Dividend Investor universe, plus one smaller ASX stock trading on a dividend yield of over 9%, fully franked.
Today, I’m buying another two stocks. No time like the present.
My portfolio, and my SMSF, have soundly out-performed the market in 2014.
I’m not resting on my laurels. I want to keep winning, keep picking winning stocks, keep seeing my portfolio powering higher and higher.
But I am realistic…
— It’s unlikely “FX Translation” will provide me with such a tailwind in 2015.
— The ASX can go down as well as up.
— I will make more investing mistakes in 2015. One or more of those mistakes is likely sitting in my portfolio right now, staring me in the face.
— Even though Facebook is still growing quickly, with a market cap of $US227 billion, valuation-wise, there’s seemingly not a lot of room for error.
What could possibly go wrong?
As Warren Buffett says…
“Only when the tide goes out do you discover who’s been swimming naked.”
Time will tell whether I’ve been swimming naked. Tune back in this time next year.
I’ll be using the summer break to review my current holdings. I’ll cut some losers, but probably not as many as I should.
Many investors think selling is the hardest thing to do. It’s not.
I have four pieces of selling advice. They are pieces of advice I guarantee you’ll find liberating.
— Forget what you paid for a stock. It’s totally irrelevant to any investing decision.
— Stop waiting for a losing stock to get back to what you paid for it. See point 1) above.
— Cut your losers. Run your winners.
— Be ruthless, don’t look back, and move forward decisively, and with confidence.
I’ll also be adding new stocks to my portfolio, particularly focusing on companies to add to the growth portion of my portfolio pyramid.
My core comprises big holdings in stocks like Woolworths Limited (ASX: WOW), Telstra Corporation Ltd (ASX: TLS), Berkshire Hathaway and a smattering of big banks thrown in for their fully franked dividends.
But it’s growth stocks that can really power your investing portfolio. With the global economy fully into recovery mode, led by America, the stage is set for growth in 2015.
The holy grail of investing is buying growth stocks at value prices. Sometimes you have to pay up for growth, as with my Facebook shares, but other times that growth comes to you at very reasonable prices.
Scott Phillips, our ace stock picker at Motley Fool Share Advisor, has just recommended subscribers to that service buy one such company.
At current prices, this recent IPO trades on a forecast forward P/E of 17, a forecast forward fully franked dividend yield of 3.7%. A growth company at a value price. Nice.
If everything goes as myself and Scott hope and expect, 2015 could be a very good year for my portfolio, and hopefully yours too.
Let me close by wishing all Motley Fool readers a Merry Christmas and Happy New Year.
I hope I’ve provided you with some investing insights, education and the odd piece of profitable advice, even if that advice has been to avoid some of the dogs that have plagued my portfolio in 2014.
Most investors focus on their losers.
I’m guilty too, although rather than despairing and beating myself up, I do it to help you avoid the mistakes I’ve made. The column inches I’ve written here on dogs like Lynas far outweigh what I’ve written about my big winners of 2014. Such is an investor’s life.
Losers are painful, but inevitable. A much more productive use of your time and emotional capital is to concentrate on your winners, including adding to them as their share price rises.
Mentally, it’s the hardest thing to do. Financially, it’s easily the best thing to do.
Adding to my winners — it’s my early new year’s investing resolution.
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Of the companies mentioned above, Bruce Jackson has an interest in Buru Energy, Facebook, Berkshire Hathaway, 3D Systems, Woolworths and Telstra.