If you are a serious long-term investor you are no doubt delighted to bid 2015 adieu. Last year was without question a year that favored speculators, traders, and rank amateurs. The big-cap U.S indices managed to eke out positive total returns for the year, but it was a handful of stocks (many of the most speculative variety) that carried the market. The average U.S. stock was down more than 4% last year. Take away Amazon, Netflix, Google, and Facebook and the S&P 500 would have finished in the red.
The misery was widespread. The only U.S. equity mutual fund strategy that delivered positive returns in 2015 was large-cap growth. The average mutual fund following Morningstar’s remaining eight strategies lost money last year with small-cap value shares (the multi-decade winner) losing the most (-6.7%).
For conservative investors and investors focused on income, the news gets even more frustrating. According to Bespoke Investments, the average return of the 74 stocks in the S&P 500 that didn’t pay a dividend at the beginning of 2014 delivered an average return of almost 4%. The average return of dividend paying stocks in the index was -5.15%.
If the dividend record is an indicator of quality as Benjamin Graham advised, then it would seem that the higher the quality and the greater the investment merits of a stock, the lower the return in 2015.
Every dog has its day sounds appropriate, but don’t forget what your mother told you, when you lay down with dogs you get up with fleas.
Don’t get fleas.
If your stock portfolio was down in 2015, you should view it as a badge of honor. High-quality businesses with durable competitive advantages and admirable dividend records had an off year. That’s no reason to abandon a winning strategy. Stick with quality and dividends and you stick with long-term investment success.
Jeremy Jones, CFA
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