The Week Explained: Lessons learned from 2012

PUBLISHED : Monday, 31 December, 2012, 12:00am
UPDATED : Monday, 31 December, 2012, 4:58am


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It has been a turbulent year for investors, but there are lessons to be gleaned from it. Here's a sample of what 2012 has taught us.

Beware the no-brainer: it's always dangerous to think of anything as obvious in the world of investment. Logic seemed to dictate that the horrible mess in the euro zone should see the euro rapidly diminishing in value. So I sold euros and bought Norwegian kroner. Norway has a sound economy, a sound budget, and generally seemed like a solid alternative to keeping money in euros.

Yet the euro has defied gravity and remained remarkably strong, not least against the kroner. Why? Well, I stupidly forgot that currencies are one of the few investments almost entirely at the mercy of rigged markets in the form of government intervention. Governments, not just in the euro zone itself, had an interest in keeping the euro high, and managed this feat quite successfully. If you wonder at the strength of the euro, glance at the strength of the US dollar for proof of this assertion.

Don't lose faith in equities: I usually regard equities as the best of all investments, especially at times when shares fall into disfavour. At the beginning of the year, stock markets were uncertain and bonds were all the rage.

Instead of taking sufficient advantage of market weakness, I was overly cautious - but thankfully not entirely so. In Hong Kong, the average price of stocks has climbed more than 20 per cent this year, making it one of the best performers in the region. Chinese equities had a wretched year, which suggests a number of bargains here.

Funny little markets such as Venezuela's performed ecstatically, yielding a rise of some 300 per cent, but shares in this Central American venue are not much of an option for the average investor. More logical and more accessible is the German market, up some 30 per cent on the year, thanks largely to a sound underlying economy. This serves as a reminder that investors should as much as possible focus more on fundamentals than fads.

Every dog has his day: I am pleased to say that I joined a growing number of investors by investing in bonds, mainly corporates as opposed to state issues, and boring old bonds had a stellar year. My general view is to avoid following the herd. But the herd is not always wrong and, in the case of bonds, there were clearly reasons why investing in debt at a time of growing demand for debt was a good idea.

Who dares wins: yet again, we learned that the most audacious market plays can yield the most spectacular rewards. In a move comparable to George Soros' bold gamble on Asia's deeply troubled markets in 1998, the controversial American investor Daniel Seth Loeb, better known by his online persona Mr Pink, pulled off a US$500 million profit from a buyback deal on Greek government debt. Greek bonds, issued in the most troubled part of the euro zone, have given investors a spectacular average return of some 80 per cent this year. Investments of this kind are not for the timid, but remind us that investment counters with the most pungent odour are sometimes the best.

A prejudice vindicated: I have long been sceptical of investments in precious metals. This scepticism was severely tested a couple of years back. But this year, both gold and silver resumed their studiously lacklustre performance.

Mad or smart: betting against the Hong Kong property market is a mug's game. But I can't help worrying over my biggest investment this year: an industrial property. It is for my company's own use, but it will take time to see whether this was folly or genius.

Finally, the most valuable tip for all investors is to learn from your own experience.