What You Do When Last Year's Strongest Stocks Are This Year's Weakest
By Yale Bock
NEW YORK (AdviceIQ) -- Many of the biggest-winning stock sectors of 2013 are the largest losers this year. This reversal stems from a move from last year's predominantly risk-on thinking (confident investors opted for riskier stocks) to the current, more pessimistic risk-off outlook.
Your response to this turnabout should be to ignore the temporary gyrations and analyze these stocks deeply before you buy, sell or hold them.
The retreat of the Federal Reserve's bond-buying program and turmoil in emerging markets get the blame for the 2014 stock market's rocky start.
It's stunning how the Standard & Poor's sectors that tore up the track are suffering lately. To be sure, the 2013 double-digit gains are only single-digit losses in 2014, and may well flip back again as the year goes on.Consider consumer discretionary stocks, which are goods and services that people do not require to live, ranging from big-ticket items such as autos and refrigerators to less costly things such as clothing and services such as hotel stays. Last year, this category was No. 1, with a 41% return. This year, the sector is the worst-performing, down 8.5%. On the other side of the spectrum, utilities, the 2013 laggard (gain: 8.8%), has done the best in 2014, up 2.2%. Utilities seldom lead the list, as they are slow-growing and heavily regulated. Their dividends are nice, a sure sign of a mature industry. Their relative safety is appealing lately, though. airlines, which bucked the trend. Another, distillers and vintners, is aided by the acquisition of the company that makes Jim Beam. Interestingly enough, we also cannot jump to the linear conclusion that today's persistent winners will remain so. The market can be very vexing. Aside from sudden switches from winner to loser is the problem of the flat-lining stock. We have all been there before, and I am sure many of you have a similar experience: when you own a specific stock of a company and it just does not do anything. Ever. Paint dries quicker or a pet rock has more activity than this stock. The longer the period of zero performance, the more the frustration builds for many investors. How might one handle this circumstance? First, let me introduce a quote from the Gilbert & Sullivan operetta H.M.S. Pinafore that is applicable: "Things are seldom what they seem, skim milk masquerades as cream." In many instances, what appears to be good is actually not so good. Conversely, what might look to be awful is really wonderful. The important question is what exactly do you own from a business perspective? John Wooden said it best: "Never mistake activity for accomplishment." Follow AdviceIQ on Twitter at @adviceiq. -- Yale Bock, CFA, is the owner and operator of YH&C Investments in Las Vegas. AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.
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