NZX top 50 shares 30%**
Emerging markets 12%
Global share hedged 18%
Global shares unhedged 11%
Global Listed Property 18%
Global bonds AA to AAA 7%
Global corporate bonds 9%
** NZX top 50 shares
The NZX top 50 SMARTfonz fund returned over 30% in 2012 - who would have predicted that? It is a passive fund that does not forecast but rather is spread across top 50 NZ shares. But before you get too excited, remember all too often last year’s best investment is often this year’s worst.
Auckland property prices are rising in a weak economy with little wage growth, yet people are borrowing more and more, so the risks to the NZ economy have to be rising. Accordingly most of us would be wise not to have too much of our money invested in NZ. We must, as always, diversify on and offshore.
Forecasters Dismal Record
Wall Street forecasters were mostly wrong in 2012. The market value of global shares increased by about $6.5 trillion last year as the the World Index returned 17%.
The expert forecasters and stock pickers who aim to beat markets lagged behind instead. More than 65 percent of active mutual funds & stock pickers did less than the S & P 500. (no surprise)
The 50 stocks out of the S&P 500 with the lowest analysts picks at the end of 2011 posted an average return of 23% outperforming the index by 7%. (no surprise again)
Germany’s sharemarket (the DAX) returned 29% for the year, yet gloom pervades Europe.
The average forecast of 12 strategists tracked by Bloomberg called for the S&P 500 to increase about 7% but it grew by 16%.
U.S. corporate bonds gained 11% in 2012, after big name commentators said bonds were not attractive.
Even cats beat active fund managers
You may have heard how dart-throwing monkeys often beat the sharebrokers. Now there’s a new competition – from cats.
UK newspaper The Observer staged an experiment, pitting a panel of share market professionals against a ginger feline called Orlando in a competition to see who would have the most success in picking stocks in 2012.
Each team invested a notional £5,000 in five companies from the FTSE All-Share index at the start of 2012. After every three months, they could exchange any stocks, replacing them with others from the index.
The professionals used their experience, insights and market knowledge to select stocks. Orlando simply threw a toy mouse onto a grid of numbers allocated to stocks in the index. The results for 2012 were ;
- Orlando the cat brought in a gain of 10.8%
- The Index returned 8.2%
- The professionals’ portfolio returned only 4%.
While this experiment was hardly scientific, it does provide another reminder about the difficulty of generating consistent above-market returns by picking individual stocks or making forecasts. And it’s something to keep in mind when you are confronted by the forecasters and stock pickers in 2013.
It should be plain by now that basing your investment strategy on someone else’s forecast is a haphazard way to build wealth. No matter how diligent and expert your forecaster is, unexpected events have a way of messing up their expectations. The good news is you don’t need a crystal ball to build wealth, BUT you do need;
- An asset allocation (the proportions of bonds, property & shares, on & offshore)
- A portfolio of efficient and widely diversified funds – like DFA
- To avoid expensive forecasters and stockpickers
- To regularly rebalanced your diversified portfolio
- The discipline to stick to your asset allocation
- To keep your cool and exercise patience – like a cat.
It is essential to stick to your asset allocation, rebalance regularly, and don’t listen too much to the forecasters, otherwise they might derail you.