2020 will go down as a year to remember in history, but for all the wrong reasons. It’ll also be a year for many investors to forget. The year stared with optimism following a decisive election result, but murmurings of a virus in China had sent markets plunging by the end of the first quarter.
Review of 2020 – a challenging year indeed
Some sectors were hit particularly hard by the pandemic. Understandably travel, hospitality and physical retail were amongst the worst hit sectors – although the former two were decent sectors right up until the virus hit the UK.
There has been much heated debate about the UK government response. My own view is that lockdowns are causing more harm than good and this floppy little bit of lockdown here and a little bit of lockdown there isn’t working. I believe we need to either live with the virus now that we’re just months away from a mass vaccine rollout or swallow a bitter pill and lockdown hard for a time limited period.
The flip flop approach is a worst of all worlds way to deal with this. The economy and the general public simply have too much uncertainty.
Despite this, after the nadir in mid-to-late March, the market has staged a good attempt at a comeback. Although the FTSE 100 remains below where it started 2020: potentially leaving room for more recovery in 2021?
What went well and what didn’t go so well
My biggest personal mistake was underestimating the impact of the virus. As such this belief led me to buying Lloyds Banking Group shares throughout February and early March. I also bought another struggling share, WPP, at around the same time. Both ended up selling for losses, although with Lloyds, subsequent averaging down and a recovery of sorts in the share price took some of the sting out of the losses.
I think the biggest mistake I made in this difficult year was when I tried to buy a micro cap momentum stock – ValiRx. The loss of 50% of my capital reminded me why I’m temperamentally better suited to a buy and hold approach with occasional trading. This is why I added Diageo, Polar Capital, Scottish Inv Trust and Murray International to my SIPP. The way a SIPP works I think encourages longer-term thinking given I won’t be able to get the money out for over 25 years.
In May I started buying shares in Team17 in my ISA after careful research of growth orientated shares. It was clear by this point there was a dividend bonfire and the virus was serious. There was little point trying to swim against the tide. Intermediate Capital Group was added just a month later in June. The remaining shares I hold in asset manager are up over 70%, even after recently going ex-dividend.
Overall, it’s been a year of learning and adapting. It’s not been a good time to be a dividend investor. 2021 could well be better; however we now know that companies could just as easily take dividends away again if the economy worsens.
What might happen in 2021?
That leads to the question: what does next year bring? Nobody can truthfully say they know the answer to that. You can only have a theory. What I’ll do is concentrate on rebuilding my income portfolio while keeping a greater percentage of my portfolio than before for growth opportunities. In some cases, as with Team17, this may even mean buying shares that don’t pay a dividend.
My best guess is the markets will rise in 2021. There I’ve said it. That’s my prediction. I think the FTSE 100 will end the year above 7,000 based on vaccinations largely having been rolled out to the vulnerable by the end of spring 2021 and with a Brexit deal with the EU having been signed.
Some analysts seem to agree. UBS has said it is “bullish on the UK,” predicting a rise of 13% in the FTSE by the end of 2021 to 7,200. Consultancy Capital Economics said the FTSE 100 could even hit 7,500 next year from its current level of around 6,500.
You can make up your own mind about the macro picture. Or ignore it completely and concentrate on stock picking.
If you like this post please do retweet or share on Facebook. It would be much appreciated.