Smart Investing


December 16, 2011


Looking back on 2011's performance

This is my last column for 2011, and it has been a wild ride.

I’m disappointed in the returns for my investors and the returns on the S&P 500, along with the Dow Jones Industrial Average. They should be much higher, at least in the double digits. Looking back, 2011 will be seen as the year that Europe stole our returns, and as I’ve been saying for most of this year, this should not have been the case.

Since Jan. 1 of this year we have seen many U.S. companies, quarter after quarter, announce better sales, better earnings, increasing dividends and buying back their own stock at record levels. Did investors listen? No. They could only hear about how bad Greece and Europe were, and kept trillions of dollars on the sidelines, sometimes earning nothing more than 0.1 percent.

I can’t wait until the first of the year, when I receive my quarterly economic reports, which will show how much was in cash for the last quarter of 2011.

This year was the first time in history that the Federal Deposit Insurance Corporation was insuring more than $10 trillion in our banks.

This year also saw U.S. 10-year Treasury yields fall below 2 percent, which was a surprise to me and many others. Those in bonds once again saw some appreciation on their bonds, but need to realize before it’s too late that there is a bond bear market coming, and it will be long and hard. Don’t be the last one to leave, because it will be painful. The low rates were beneficial to our economy, and allowed some to refi their mortgages and put more in their pockets each month to spend on other items. Low rates also allowed some to buy new homes in which to raise their families. They may not be a great investment going forward, but low rates did help our economy.

We saw volatility in 2011 that was hard to believe. The S&P 500 reached a high of 1,364 on April 29 and a low of 1,099 on Oct. 3, nearly a 20 percent swing from high to low. Not the worst high/low in history, but enough to make many become nervous. Unfortunately, some sold out when the lows were too much to handle.

I read in a professional publication, Investment News, that fee-based advisers are looking at increasing their fees in 2012 because the drop in their client account values has hurt their income. Let me assure everyone my fees will not be going up in 2012. I stand behind the fact that if my clients do well I get rewarded, but if they suffer I suffer too, and raising one's fees when performance is bad is just bad business sense. Be sure to watch out for this in 2012. It may be dressed up in the form of a financial planning fee or some other charge that will be dressed up to sound good, but in the long run just reduces your investment return.

At this point, I’m not sure where 2011 will end up. I still believe come Dec. 31 that the S&P 500 will be in positive territory of around 3-5 percent. While such short predictions are a fool’s game, I think the holiday season will prove to be one of the best in history, if not the best, and the markets should rally on the good news.

Looking forward to 2012, we should see some good returns in the S&P 500 and the Dow. As the U.S. economy continues to grow at a 3 percent rate, American businesses can continue to grow their sales and increase profits, making their companies more valuable than the year before. There will also be more stock buybacks, increasing dividends, and more mergers and acquisitions, which will reduce shares outstanding.

Europe should be less of an issue in 2012, and as investors focus more on the United States, huge rallies will take place. Once again patience will be a main ingredient, but true investors will focus on Dec. 3, 2012, not the next day or the next week. Please leave that craziness up to the traders who, over time, really don’t make any money, but sure get a lot of attention on the short term.

In 2012, investors should not be without financial companies, energy companies and technology companies. These three industries should do well in the coming year and should add a nice boost to investors’ portfolios.

Enjoy the rest of your holiday season, and when 2012 rolls around, remember to invest in companies and forget the stock trading idea. It’s a terrible long-term investment plan.

Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.


December 16, 2011