2013 was a stellar year for the stock market and my clients as well. The Growth Portfolio, which composes the most assets under management, rose 49% for the year, the Aggressive Growth Portfolio returned 50%. The S&P 500 (the market) rose 30%.
Last year was my third year of greater than 40% returns in an eleven year career as a stock portfolio manager. A $100,000 investment in the Growth Portfolio at inception would have generated a profit of $210,000, compared to a profit of $110,000 in the S&P 500.
2014 started weak, and scary from my perspective. The Growth Portfolio returned only 2% in both 2012 & 2013, and mid-way through 2014 it was up only 7% year-to-date. The market was up a solid 13% in 2013’s first half, and I was concerned clients would move on as I wasn’t delivering returns. I was afraid for my business, and owe you gratitude for believing in me. After halftime the Growth Portfolio posted monthly returns of 10%, 4%, 7%, 4%, 7% and 3% from July through December. I feel like I left the doghouse and then won Westminster.
Going into 2013 I predicted the stock market would grow 21% for the year, and a total of 46% by 2014. The market was selling for only 14 times earnings late in 2012 and in low inflation environments like this the market is worth 18 times earnings. I felt the market’s P/E would rise from 14 to 16 in 2013 and from 16 to 18 in 2014. The market ended 2013 with a P/E of 17. Conservative dividend paying stocks were on sale then, they rose and now have little upside. With many big stocks like Microsoft ($36 and worth $32 this year, $36 next year) and Proctor & Gamble ($76, worth $72 this year, $79 next year) now fairly valued it will be hard to get the market’s P/E from 17 to 18. With a 17 P/E the market will gain 9% this year, an 18 P/E nets a 15% return. I’m guessing the market rises 12%.
Although I am less optimistic on the market, I’m very bullish on prospects for our portfolios. My Top Ten for 2014 has upside to Fair Value of 54%. I’m most bullish on Facebook, Michael Kors, Priceline (as usual) and Chinese Internet stocks, which boosted our performance in the second half of 2013 and I expect them to do so again in 2014.
In conclusion I wish to thank you for your business. I wouldn’t be here today if it wasn’t for your trust and faith. In 2014 I hope to increase my research more on young stocks, and continue to uncover tomorrow’s stock market winners today.
