I just reviewed some interesting research on the stock market by an investment platform. AJ Belland the lessons that its analysts draw from it.
But here I want to offer my own thoughts on what the past year has taught me so far.
There is a contrast that really catches my attention. The returns on capital from the FTSE 100 in 2023, until December 18, it reached 6.5%.
This is pretty close to the long-term average of the index, perhaps held back a bit by inflation and interest rates.
America soars
But in the United States, the S&P 500 has gained 25.5% in the same period of time. And the Nasdaq has increased by 42.4%.
I get my first lesson from that, and it's not what some might think. I take it that the US stock markets are a better place to invest? If we want high-tech growth, probably yes.
But for long-term dividend investors like me, this always puts the UK market on top. I want share prices to stay low, with stocks at lower valuations, so I can get even better long-term dividend income.
stock market crash?
I keep seeing headlines screaming about a new stock market crash in 2024. But they're all American commentators talking about an overheated S&P. I feel much safer here with our cooler Footsie.
The report also suggests that it may be tempting to view the 2021-22 period as an aberration, as we recover from the Covid pandemic. And that things are beginning to return to normal.
I think that might be correct, but this brings me to another lesson I learned from the year.
Things change every year.
I would say that each year is an aberration, in its own way. Nothing is ever exactly the same. There is always something different, maybe a little, maybe a lot.
Trying to adapt to changing conditions can turn a sensible long-term investor into a reckless short-term trader. Well, maybe I'm exaggerating, but I hope readers know what I mean.
If I chop and change and try to micro-adjust my strategy to follow fads and fads, I'm going to waste a lot of time. And probably a good amount of money in fees, buying and selling things when you shouldn't.
My general opinion
There are actually two lessons, but they are combined into an overall approach. It is summarized in the famous idea of Warren Buffett: “If you're not thinking about owning stocks for ten years, don't even think about owning them for ten minutes.“
Let's imagine we had set up a stocks and Shares ISA a decade ago and arranged regular share purchases. And then we embarked on a mission to deep space (or something like that) for 10 years.
We come back, we have no idea what happened in the world during the time we were away and we check our ISA.
And if we manage to match the average over the period, we find that our pot has grown by 9.6% annually. Wouldn't we be happy with that? I know I would.
