Our best investment advice of 2024
By James Parkyn - PWL Capital - Montreal
The year gone by was extraordinary for stocks. In 2024, investors shrugged off high interest rates and warnings of a possible economic slowdown, boosting equities to multiple new all-time highs.
In the first half of 2024, the S&P 500 Index had its 13th best yearly start since 1950. By the end of December, the U.S. total market index had soared 34.31% in Canadian dollars, while Canadian equities shot up 21.65% and international large and mid-cap stocks gained 12.63% in Canadian dollars.
As we embark on a new year, we wanted to look back at some of our most popular blog posts of 2024.
Yesterday’s home runs don’t win today’s games.
We reminded readers to keep Babe Ruth’s classic advice in mind when they heard tongues wag about the “Magnificent Seven” stocks that did so well last year.
So-called “Mag 7” stocks such as NVIDIA, Microsoft and Apple performed exceptionally. But this was far from the first time a small handful of darling companies had turned heads or dominated markets.
A Wall Street Journal analysis of 10 market-cap leaders found that these companies underperformed the U.S. stock market by 6 percentage points in the five years after they hit No. 1. As we often say at PWL, don’t chase past returns!
Patience pays: Warren Buffett’s advice to investors.
We shared investing wisdom from Buffett’s annual newsletter to the shareholders of Berkshire Hathaway. The world’s most famous stock investor believes that success comes from patiently riding out market volatility and holding positions for the long term, not trying to time markets.
“It’s harder than you would think to predict which [companies] will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen,” Buffett said.
As stocks rocketed to new highs, we talked about how investors should respond.
Should you wait for a correction before adding to investments? Should you take profits?
Evidence suggests that rising stocks are a normal and healthy sign of a strong economy. The broad U.S. equity market has made 1,250 new highs since 1950, or 16 per year, according to RBC Global Asset Management.
Markets don’t necessarily retreat after record highs. In fact, RBC’s report and a second study from Dimensonal Fund Advisors found that returns after all-time highs weren’t materially different than those from investing at other times.
Almost all wealth creation typically comes from a tiny number of stocks.
How tiny a number?
New research shows that just 4% of stocks accounted for all stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023. A majority of stocks—51.6% to be exact—actually had negative compound returns in this period. In other words, most stocks lost money over their life.
Since we can’t know the future stars ahead of time, study author Hendrik Bessembinder concluded that it’s best to own the entire market through broad index funds. The research gives powerful support for investing strategies that focus on passively owning a well-diversified portfolio of stocks with a long-term horizon—the approach we use at PWL.
Can a crystal ball make you rich? Not necessarily, we reported in our blog.
An experiment set out to see how 118 U.S. university graduate students—90% in finance or MBA programs—would do in the markets if they had access to the previous day’s Wall Street Journal.
Not so well, it turned out. The students had an average return of just 3.2%—statistically indistinguishable from breaking even. Just under half of students (45%) lost money, while 16% went bust. They made winning trades only 51.5% of the time.
These middling results were actually much better than those of 1,500 people who tried the same experiment on the study authors’ website. Their median result was a 30% loss, while 36% lost everything.
The results are just another good example of how hard it is to guess what markets will do. Even advance information appears to be unhelpful for most people. It can actually be ruinous for some.
As we often say at PWL, timing the market is a gamble. Data shows you’re better off with long-term investment plan that you stick to with discipline.
On behalf of PWL Capital’s Parkyn-Doyon La Rochelle team, we wish you and your family good health, prosperity and happiness in all you do in 2025!
Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website.