If you’d fallen asleep at your Bloomberg screen a year ago and woken up today, you might think nothing much had happened in the past 12 months. Greece, China, the Fed, elections – what has it all amounted to? The MSCI All Countries World index is slap bang where it was in December 2014.
Of course, that doesn’t really tell the story of 2015. It’s been a year of high drama and stock markets have taken a circuitous and volatile route to end up where they began. The averages disguise a wide range of winners and losers. So what have we learned?
First, picking the right sectors and stocks has mattered a lot. After a long period in which most investments have gone up and down in lock-step, fortunes diverged.
A few simple decisions in January determined whether you had a good or a bad 2015. The top decision was to avoid anything commodity-related. Anglo American, Glencore, BHP Billiton and Antofagasta have been the four worst-performing stocks this year in the UK (average fall just under 60pc), with Rio Tinto and Shell joining them in the top-10 losers.
Which leads to 2015’s second lesson: supposedly rational economic agents are anything but. The logical thing for those commodity producers to have done this year would have been to stop digging.
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In a market characterised by over-supply and insufficient demand, the obvious solution might have been to remove capacity. That isn’t how it works, though. The stubborn desire to squeeze out less efficient producers has cost shareholders dearly.
The same story has played out in oil, where Opec, led by Saudi Arabia, has paid a bafflingly high price to maintain market share.
At the other end of the rankings, Taylor Wimpey, Barratt and Berkeley are all in the top-10 risers.
So the third lesson is that the trend is your friend. These three house-builders have risen between three and six-fold in the past four years. Despite that extended outperformance they all added more than 40pc this year. This was not just a momentum trade – profits and dividends at the builders have soared, keeping valuations reasonable all the way up.
Lesson four: a share doesn’t know what you paid for it. Or as economist John Maynard Keynes put it, “when the facts change, I change my mind”.
The fifth lesson is that contrarian investing is hard.
In the long run, buying cheap “value” stocks has produced the best investment returns. This year, however, it has paid to follow the herd.
In a low-growth, low-interest-rate environment both growth and income should have been highly-prized but it’s been port-in-the-storm buy and hold stocks which have enjoyed a re-rating. A hundred pounds in growth shares this year has made you 10 pounds; in value stocks it’s lost the same amount.
Which leads to lesson six: markets can only ever concentrate on one idea at a time.
For a while, investors obsessed about Greece, then it was China, then the Federal Reserve. All three of these were live stories throughout the year, but at any one time each was either all-important or irrelevant.
The seventh lesson is that markets and economies are almost entirely unrelated.
The Chinese stock market bubble in the first half of 2015 took off, despite strong evidence that the Chinese economy was slowing fast. Closer to home, the UK’s robust economic recovery has passed the stock market by. We’re growing faster than the rest of the developed world, but the wholly unrepresentative FTSE 100 is underwater.
A difficult year for the UK though: The FTSE Index has fallen steadily after hitting a new peak in April.
Lesson number eight is that stock market adages either work or they don’t.
Short of a spectacular Santa rally over the next two weeks, the January effect will have bombed this year. Shares rose in the first month but failed to follow through with a full-year gain. “Sell in May and Go Away”, however, had a vintage year. If you’d sold up and spent the summer on the beach, you’d have enjoyed 2015.
My final lesson is that while history does not repeat itself it certainly rhymes.
Three aspects of markets this year look worryingly like the final stages of earlier bull markets.
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Takeovers are back in fashion, with the value of deals in 2015 overtaking the previous peak in 2007; corporate leverage has soared; and the market rally has been driven by an increasingly small number of companies. A narrowing in the market leadership is typical as a bull market ages.
So there’s a lot more going on than a flat global equity market would imply. Next week I’ll set out what I think it means for 2016.
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