In normal times, the New Year is a period to look back upon the year that’s just gone. It’s a time to appreciate what went well and learn from what didn’t go so well. This one’s a bit different. 2020 was a year that virtually all of us will want to forget. Even so, I’m going to use this time to look back at how my stock picks performed in the most unusual of periods.
Throughout 2020, I picked out 36 stocks that I thought would make good investments. The stock selections covered a range of industries and company sizes. They also had varying risk profiles, while the underlying companies where also at different stages of maturity. Some of the stocks were picked twice, so here I’ve only included the returns from the first time I chose a particular share.
How did I do?
Assuming all investments were equally weighted and made on the day I wrote about them, the potential stock picks for my portfolio would have finished the year up 3% (without including dividends). Investing the same amounts, at the same time, in the FTSE 100 would have produced a return of 0%. Meanwhile, investing a lump sum in the FTSE 100 at the start of the year would have lost 14%.
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Some 61% of the portfolio gained in value. Of note were the performances of Ferrexpo (+58%) and Goco (+42%), but there were another six stocks that returned over 20%. What this means is that the performance of the portfolio was significantly weakened by just a couple of stocks.
In this case, it was Costain (-64%) and IAG (-52%) that caused the damage. Taking just these two shares out of the portfolio increases the return to 7%. The portfolio’s returns also show a clear divide between before the pandemic began in March and thereafter. Stocks picked before mid-March lost 13%, compared to a gain of 14% from those picked after that point.
In fact, the biggest drags on the portfolio (IAG and Costain) were both picked at the beginning of March. Looking back to that point, it seems clear that I didn’t appreciate the true scale of the pandemic and the lasting effect it would have. But making mistakes is part of investing. Experiences like this allow us to make better decisions in the future.
Investment lessons from 2020
More than anything else, I think these results show how important it is to buy shares at low prices. This provides us with a serious opportunity to make outsized returns. And prices tend to be at their lowest during a stock market crash. That’s certainly what we saw this year. It may seem like a scary time to be investing, but in fact I think it’s a great time to buy.
Another thing to take away from the performance of my stock picks is the benefit of investing regularly over the course of a year, as opposed to investing in one lump sum. This way we buy at a range of prices. Although admittedly, the difference isn’t usually so marked as it was this year. Investing in a number of different stocks also reduces risk and improves our chances of achieving positive returns. After all, 39% of my portfolio lost value. Investing in one of these stocks on their own could have been disastrous.
