Before you rush…

The above tables show the performance of the UK Index ’s components since 31 Dec 2014. That’s not to say you should rush in and buy all 10 of what did best last year hoping for further solid gains. Or that you should consider the bottom 10 as either recovery or short candidates. The point we make is that the UK Index did fall 5% last year. However, it was by virtue of it being an index of 100 stocks, and thus highly diversified, that it fell by only 5%.

Any manager of a Mining/Oil fund is sure to have taken a bath last year with losses likely >30%. But for reasons not entirely unknown before the start of 2015. China has been growing more slowly and thus demanding less raw materials for a good while now. Therefore anyone who has held on to loss-making positions in anything commodity-related has been stubborn to the point of self-harm as China data disappointed on a monthly basis and the commodity currency USD strengthened in the moved towards December’s first Fed rate hike in 9 years.

Happy New Year Statto!

Our full UK Index breakdown (please ask for the spreadsheet) suggests you had a 25% chance of picking a stock that gained 10-45% (ignore DCC +56% as it only entered the index late Dec along with PFG and WPG). 15% of shares rose 20%+. If the UK Index -5% is your problem, you still had a 65% chance of picking a stock that outperformed the index last year. Equally you had a 75% chance of not picking one of the few stocks that fell 10-80%. No surprise to see 8 of the bottom 10 are Miners, Oil or Financials. These are good stats. So long as you respect the need for diversification and to look outside the usual suspects of Banks, Miners and Oil.

 What held the index back?

The prior table shows what has held the index back most since end-2014. As we said earlier, no surprise to see Oil, Miners and Banks making up the bulk of lost points given their exposure to a falling oil price, falling commodity prices and global growth sentiment in general. Of the 650pt UK Index index decline, the bottom 5 (Royal Dutch Shell, HSBC, BP, Rio and RBS) account for a whopping 50%!

Our point here is that the UK Index ’s losses and hindrance has been very concentrated and thus should have been easy to avoid. So long as, and I repeat myself, you respect the need for diversification. Having a position in all the miners or all the banks does not count as being diversified. We’re talking about getting out of your comfort zone and considering some of the stocks that are deemed less sexy and less talked about because they are likely just grinding higher and off people’s radars. They might not deliver the daily moves many crave for in their quest to double their account in a week, but they are also stocks where you are far likely to get less hurt.

We’ve written before about shunning names unfamiliar to you and missing out on profitable opportunities. Restricting yourself to a select few stocks in only a couple of sectors can of course be highly profitable, but you also run the risk of being more exposed to market news when things go bad. You also risk becoming emotionally attached to the stocks, feeling the need to trade the names repeatedly to replicate gains or indeed recoup losses.

The UK Index offers a wealth of stocks which obviously offer profitable opportunities outside the usual suspects, being just as big/liquid and easy to trade. And we are here to talk about all 100 not just the select few that are mentioned daily in the media because they are helping it rally or fall.

“It’s as much about capital appreciation as it is about capital accumulation.”