To paraphrase Yogi Berra, it’s tough for investors to make predictions, especially about the future.
That was certainly the case in 2011 for investors whose portfolios were hurt by unforeseen developments – from Libya to Japan to Europe to Washington.
Here are some investing lessons from this year:
• DON’T COUNT OUT TREASURYS
Did you follow the lead of star bond investor Bill Gross of PIMCO and dump Treasurys because the outlook was bad for U.S. debt? Oops. You lost out on good returns.
Treasury prices rose sharply starting in February as the weaker U.S. economy and Europe’s debt crisis sent investors looking for safe investments. Yields on bonds move in the opposite direction from their price. The strong demand for U.S. debt sent the yield on the 10-year Treasury to a record low of 1.71 percent in September. It was 2 percent Friday.
How to explain bonds’ unusual staying power for investors? Safety trumps all, says Gary Thayer, chief macro strategist for Wells Fargo Advisors in St. Louis.
“During uncertain times, investors are willing to accept a low rate and worry about what rates will be for the long term later,” he says.
• NETFLIX IS NOT NIRVANA
Be careful with hot stocks -- you can get burned. Netflix Inc. (NFLX) lost nearly 80 percent of its value the second half of the year. That was after it rose nearly 400 percent in 18 months. It peaked at $304.79 in July before plunging as low as $62 this month. Another soaring growth stock, Green Mountain Coffee Roasters Inc. (GMCR), lost two-thirds of its value in eight weeks after nearly quadrupling from January to September. Both stocks fell on negative news about the companies.
• GOLD ISN’T SUCH A SAFE HARBOR
The price of gold reached a record $1,891.90 an ounce in August. At that point, it was up 33 percent for the year. Many investors believed gold was a safe place for their money. But speculative buying played a big role in its rise, and that left gold vulnerable to a sell-off. And sure enough, by Sept. 29, it had fallen 15 percent from its high to $1,608.50. It’s still up 13 percent for the year. It closed Friday at $1,604.70.
• INTERNATIONAL INVESTMENTS CAN IMPLODE.
Many investors ignored warning signs about Europe a year ago. That came back to bite anyone who was heavily into European or international stocks. The Vanguard European Stock Index Fund (VEURX) lost 30 percent of its value between April and late September as the sovereign debt crisis boiled over. And international stocks overall, as measured by the Vanguard Total International Stock Index Fund (VGTSX), fell nearly as much during the same period – 25 percent. Both are down double-digit percentages for the year.
That doesn’t mean you should ignore international stocks entirely in your portfolio. If you have an investing horizon of five to 10 years, this might be a great time to go into them.
“International diversity is important in the long term,” says Mark Luschini, chief investment strategist for the Janney Montgomery Scott investment firm in Philadelphia. It’s just that following the prescription without caution hurt in 2011.
• IPOs ARE A GAMBLE.
It’s wise to avoid a stock that has just gone public unless you’re fortunate enough to buy at the offer price (before it hits the open market). This year’s initial public offerings showed again that new stocks tend to soar on Day One, buoyed by all those who got in early, and then stall. Several stocks that enjoyed a big first-day “pop” in 2011 are now back below their offering prices.
—Groupon Inc. (GRPN): First day, up 31 percent. Since then, down 13 percent.
—LinkedIn Corp. (LNKD): First day, up 109 percent. Since then, down 32 percent.
—Pandora Media Inc. (P): First day, up 9 percent. Since then, down 43 percent.
—Zillow Inc. (Z): First day, up 79 percent. Since then, down 36 percent.