<p>Picking good investments is important but perhaps represents just 20% of the puzzle. Learning how to hold onto the darn things, regardless of what the market throws at you, is arguably the other 80%.</p>
<p><!--more--></p>
<p>Context helps a lot I find, so when the market does swan dive I like to step back and put it into perspective.</p>
<p>For example, while 2018 has certainly seemed like a pretty scary year, with two sizeable market setbacks in January to March and October to December*, thanks to a small decline in the pound, world markets have basically been flat for UK investors.</p>
<p><sup>* So far at least. Who knows when the current drop will peter out!</sup></p>
<p>A lot of people highlight the arbitrary nature of analysing returns by calendar years. I can see their point but I do find it a useful exercise. Quarterly is too frequent and a few years seems too long. The middle bowl of porridge &#8211; an annual check-up &#8211; seems about right to me.</p>
<p>As Carl Richards often says, <a href="https://behaviorgap.com/blogs/articles/try-this-for-your-goals">course corrections are inevitable</a> when it comes to investment plans, so monitoring progress is crucial. I certainly find that my own investing plan needs frequent tweaking!</p>
<h2>UK stock markets in 2018</h2>
<p>As around <a href="https://www.itinvestor.co.uk/2018/11/go-global-or-go-home/">30% of my portfolio</a> is in the UK, how the London market has performed is a key driver of my returns. Here&#8217;s how the UK has done up to 7th December and it&#8217;s not a pretty picture:</p>
<table id="iti">
<tbody>
<tr>
<th style="text-align: left;">Index</th>
<th style="text-align: right;">% change</th>
</tr>
<tr>
<td>FTSE All-Share</td>
<td style="text-align: right;">-8.7</td>
</tr>
<tr>
<td>FTSE 100</td>
<td style="text-align: right;">-8.2</td>
</tr>
<tr>
<td>FTSE 250 ex Inv Trust</td>
<td style="text-align: right;">-13.5</td>
</tr>
<tr>
<td>FTSE All-Small ex Inv Trust</td>
<td style="text-align: right;">-12.4</td>
</tr>
</tbody>
</table>
<p>These returns are on a <a href="https://www.ftse.com/products/indices/uk">total return basis</a>, which adds 3.4% to the overall performance. On a price only basis, the basic indices you see quoted most widely, the UK market was down by about 12%.</p>
<p>It helps to remember that 10% drops <a href="https://www.itinvestor.co.uk/2018/10/bear-essentials-how-i-approach-stock-market-falls/">aren&#8217;t that uncommon</a>, happening once every year or so on average. We&#8217;ve had two pretty close together, which is a little bit more unusual, although I suspect many people have already forgotten the first one!</p>
<p>This year, it&#8217;s been <a href="https://www.itinvestor.co.uk/2018/12/big-returns-from-the-small-cap-effect/">mid and small caps</a> taking a heavier hit. As they tend to be more focused on the domestic economy, that&#8217;s not too surprising.</p>
<h2>Global returns so far in 2018</h2>
<p>Spreading the net wider, here&#8217;s how major markets have performed in pound terms. Russia leads the way and Germany props up the table.</p>
<table id="iti">
<tbody>
<tr>
<th>Region/country</th>
<th style="text-align: right;">% change in £ terms</th>
</tr>
<tr>
<td>Russia</td>
<td style="text-align: right;">13.8</td>
</tr>
<tr>
<td>US</td>
<td style="text-align: right;">6.2</td>
</tr>
<tr>
<td>Brazil</td>
<td style="text-align: right;">5.7</td>
</tr>
<tr>
<td>Developed</td>
<td style="text-align: right;">0.9</td>
</tr>
<tr>
<td><strong>Global </strong></td>
<td style="text-align: right;"><strong>-0.3</strong></td>
</tr>
<tr>
<td>Japan</td>
<td style="text-align: right;">-2.9</td>
</tr>
<tr>
<td>Global Small Cap</td>
<td style="text-align: right;">-3.6</td>
</tr>
<tr>
<td>Australia</td>
<td style="text-align: right;">-4.6</td>
</tr>
<tr>
<td>Canada</td>
<td style="text-align: right;">-5.0</td>
</tr>
<tr>
<td>Asia Pacific</td>
<td style="text-align: right;">-5.7</td>
</tr>
<tr>
<td><strong>Global ex-US</strong></td>
<td style="text-align: right;"><strong>-6.4</strong></td>
</tr>
<tr>
<td>Emerging</td>
<td style="text-align: right;">-6.7</td>
</tr>
<tr>
<td>India</td>
<td style="text-align: right;">-6.7</td>
</tr>
<tr>
<td>Europe</td>
<td style="text-align: right;">-7.4</td>
</tr>
<tr>
<td>UK</td>
<td style="text-align: right;">-8.6</td>
</tr>
<tr>
<td>China</td>
<td style="text-align: right;">-10.6</td>
</tr>
<tr>
<td>Germany</td>
<td style="text-align: right;">-14.7</td>
</tr>
</tbody>
</table>
<p>The huge impact of the US can be seen here. Strip it out and global indices declined by 6.4%.</p>
<p>Interestingly, emerging markets have performed about the same as other non-US markets, albeit with a wide variation within that. Russia and Brazil have done well, while China has had a very poor year.</p>
<p>If we were to look at the same table in US dollars, everything shifts down 6% or so. The US market is basically flat in dollar terms and the global market down nearly 7%.</p>
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<h3 style="text-align: center;">Join the Money Makers circle</h3>
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<h2>The ever-sinking pound?</h2>
<p>To digress momentarily, I must admit to not spending a lot of time thinking about currencies when investing, usually taking the view that most movements come out in the wash.</p>
<p>Yet it&#8217;s remarkable to think that the pounds spent quite a few years before the financial crisis at the $1.80 to $2.00 level. $1.40 appeared to be the &#8216;new normal&#8217; in recent years, before the downshift to $1.25-$1.30 after the Referendum.</p>
<p>Looking at this chart of the pound against a basket of our main trading partners, you can see that sterling has lost around 1.4% a year over the last 35 years. It&#8217;s lurched downwards at various points, rather than being a gradual decline.</p>
<p><a href="https://www.itinvestor.co.uk/wp-content/uploads/2018/12/Pound_effective_rate.png"><img class="alignnone size-large wp-image-1116" src="https://www.itinvestor.co.uk/wp-content/uploads/2018/12/Pound_effective_rate-600x165.png" alt="Pound against basket of currencies from Poundsterlinglive.com" width="600" height="165" /></a></p>
<p>As an investor who spends mostly in pounds, I don&#8217;t think there&#8217;s much of an action point here for me, other than a reminder of the importance of investing globally.</p>
<h2>How I&#8217;ve done in 2018</h2>
<p>My main portfolio was down 2.1% for the year as of Friday, so that&#8217;s pretty much what the indices would suggest given my 30% UK weighting. I&#8217;m perhaps ahead by 0.5%, but that&#8217;s basically a daily movement so meaningless in my view.</p>
<p>My pension, smaller and mostly invested in Fundsmith and Lindsell Train Global, is up around 11%. I&#8217;m very pleased with that, although the irony that my best performers this year have not been investment trusts is not lost on me!</p>
<p>Do I need any &#8216;course corrections&#8217;? For me, there are two basic considerations when I do these sort of reviews. The first is do I tweak my underlying investments, while the second is whether active investing continues to be a worthwhile pursuit.</p>
<p>On the first aspect, nothing leaps out at me for the moment. I&#8217;ve made a few shifts to my portfolio in the last 18 months or so, boosting my small-cap exposure at one end and adding more on an income focus at the other. I feel I need to let that play out a little before tinkering too much.</p>
<p>As for the passive question, I&#8217;m still happy with my overall performance. My long-term challenge of keeping my nose ahead of the market looks set to continue for a little while longer.</p>


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