As I write, the stock market has had its worst start to a year since 2009. Nineteen ninety-eight was similarly bad. With it, sentiment and market commentary have turned increasingly dour. Note that in both 1998 and 2009, markets went on a wild ride, but the S&P 500 ended up 28% and 20%, respectively.
Last month I said I expected good things in 2016, not necessarily gangbusters. But I’m not disheartened by any few weeks. Markets are volatile–always have been.
Unless you expect a major bear market, note that when returns have been blah one year they’ve been good to great the next. In 2015 the world market was slightly negative. The S&P 500 with dividends was up 1.4%–a blah year. But blah years–meaning up or down less than 5%–have been followed by positive years over 75% of the time, with gangbuster 25% average returns.
There are those who say, correctly, that when things start as weakly as they have this year, it’s historically been a coin toss as to what happens next. Yet what they miss is that there have been too few instances of very bad starts (by my count, only four) for this to be meaningful. Things aren’t nearly as bleak as many fear they are.
What was bleak? The results of my 2015 stock picks. Calculated by Forbes, taking a hypothetical 1% brokerage commission haircut, my basket lagged the S&P 500 (without any brokerage haircut) by 5% equal dollars invested. This is the seventh year out of 20 that my picks have lagged and the third year in a row. Double ugh! As usual, over half of my picks were foreign, and for the third year foreign lagged. But that’s no excuse. Fourth time is the charm. I remain optimistic and particularly like some of my worst-performing 2015 picks, such as the following:
I picked Western Digital WDC -1.65%(WDC, Financial)and Seagate Technology(STX, Financial) on Apr. 13 at 100 and 56. WDC was my absolute worst performer. But these two should work out in time, dominating hard disk drives, which are central to cloud computing and must thrive if society is to as well. Hang on or buy. Meanwhile, STX is at 80% of annual revenue and 12 times analysts’ 2016 consensus earnings estimates, with a 7% dividend yield. WDC is at 80% of annual revenue and nine times 2016 consensus earnings estimates–with a 4.1% dividend yield.
