The View

Sometimes you’re better off leaving your money in the bank

People who enjoy the business of investing find it quite hard to sit back and do nothing

PUBLISHED : Wednesday, 06 January, 2016, 10:52am
UPDATED : Wednesday, 06 January, 2016, 10:52am

Phew, 2015 is over; a year in which investors found it really difficult to avoid losses or had to settle for modest gains.

Here in Hong Kong, the Hang Seng Index lost over 7 per cent of its value. Chinese stocks, as reflected in the Shanghai Composite index, were up a modest 3.4 per cent but post-new year movements have seen the Chinese markets in far worse shape. Elsewhere in Asia most markets were down, particularly in Singapore where shares suffered a 14 per cent slump. Japan was home to the only major Asian market doing well, ending the year up by almost 10 per cent.

Meanwhile the Dow hardly changed at the year-end and London’s FTSE 100 slumped almost 4 per cent. There was better news elsewhere in Europe with Germany’s Dax up 9 per cent and even the CAC 40 in Paris up 8.5 per cent, indeed most of the euro region was in positive territory despite all the gloom and doom about the European Community.

As ever, the most spectacular gains and losses were registered in smaller markets which are far less troubled by the participation of international investors. In this context the really brave would have done well in Venezuela where share prices recovered from a long battering to rise 276 per cent.

Currencies had a bit of a roller-coaster year, however the US dollar, which for local investors is synonymous with the Hong Kong dollar, had a pretty good year as long as you were purely investing in the currency itself compared to other major currencies.

Sticking with investments that prove their worth over time may be considered stodgy but it’s a proven strategy

The really bad markets for investors were commodity markets, which saw dramatic price falls more or less everywhere: from oil down by almost 30 per cent, to precious metals, such as gold, down some 10 per cent and platinum down almost 27 per cent. All non-precious metals were in a very bad way, topped by the 57 per cent fall in the steel price. It was almost as bad in the agricultural sector with most commodities registering double-digit price falls but not the rice market, which managed a modest 4 per cent year-end gain.

Cautious investors headed off to the unexciting bond markets, which did what they generally do, i.e. inch up and down. Even one of the worst bond markets, the Russian market, only ended the year with a 4 per cent decline, around the same percentage gain of one of the best bond markets, the Brazilian market. Elsewhere most of the action was in the fraction-of-1-per-cent price movement range.

I am aware that readers are not accustomed to being bombarded with statistics in this space but a tour of last year’s investment returns helps to make a point. That point is that a Hong Kong investor could simply have left their money in the bank throughout last year, it would have earned practically nothing but then again it was a low inflation year and so deposits would just about have held their value, whereas an active investment strategy, in all manner of markets, would have offered considerable risk in return for limited rewards.

People who enjoy the business of investing find it quite hard to sit back and do nothing, especially when the volatility of markets seems to present opportunities for the nimble-footed.

But the lure of action is misplaced as most individual investors have or should have rather simple objectives starting with wealth preservation and extending to modest aspirations for increasing that wealth over time. It’s the over time bit that really matters because unless there is a pressing need to liquidate investments, most investments will eventually come good, especially if they are in mainstream markets and even more especially if they are in mainstream equities. A case in point being Japanese equities that came out of the doldrums, because the Nikkei 225 consists of a large number of world class companies that may have faltered and been distracted but remain basically sound.

Solid investments have a habit of coming good again. Therefore they are best left where they are even if you keep receiving bothersome communications from banks and investment houses. Sometimes they threaten to freeze your account because of a lack of activity or they just pester you to visit an “investment adviser” whose advice generally consists of urging you to buy one of the many useless mutual funds that earn good money for the people selling them.

Even after avoiding these bothersome people, investors often chose the new year to go through their investment portfolios looking for new directions but they need to resist the temptation to embrace the new just for the sake of novelty. Sticking with investments that prove their worth over time may be considered stodgy but it’s a proven strategy.

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster