Last years winners old hat


Published in the Geelong Advertiser, June 2014 by Dale Gillham

When it comes to investing in the share market, last year’s winners rarely run first in the next.

Surprisingly, some still believe that looking at last year’s best performers is the way to pick next year’s.

However in reality this is often not the case and here’s why.

At different stages of the economic cycle conditions favour particular sectors over others.

The Australian market is made up of different sectors, or groups of stocks, classified according to the type of business being undertaken.

So for example, healthcare companies like CSL and Resmed make up the Healthcare sector, while telecommunications companies such as Telstra and Singapore Telecom make up the Telecommunications sector.

What this means is that the performance of the sector is based on the performance of the stocks within that sector.

Looking at major sectors in any of the past four years shows how the top performing sectors have changed from year to year.

In 2010 the three best performing sectors were Materials, Healthcare and Utilities. In 2011 it was Telecommunications, Utilities and Consumer Staples.

In 2012 the top three sectors were Health, Telecommunications and Property.

Starting to see a pattern here?

Finally, in 2013, the top three changed again to Consumer Discretionary, Information Technology and Financials.

If the best sectors change from year to year it is highly likely that the best performing stocks will be different too.

So invest in areas where the rise is still to come, not in what was the best last year, as often the rise in price of these shares has already occurred.

So what do we expect in the market?

Following three straight days of declining share prices in the latter part of last week, the market closed on Friday at around 5384 points.

However, this week’s market action has so far been very different, with the market showing a halt of the decline and lower volatility in the lead up to the US Federal Reserve Bank meeting on Wednesday night.

It was clear from this sideways move that the market was waiting for FED chair Janet Yellen to confirm a further cut to the bond buying program, and news on the US economy.

Yellen reported that the bond buying program would continue, and discussed her upbeat view on the US economy, which spurred a further rise in US equities overnight.

On Thursday, our market sprang back to follow the US lead, which is a great sign, however may it be short lived, as any move down on the market typically runs over two to four weeks before the next rise


Back to Articles