Skip to main content

Lucas Jackson / Reuters/REUTERS

To paraphrase the philosopher George Santayana, those who don't learn from stock market's past are condemned to repeat it.

With that in mind, let's look at some lessons investors learned – or at least should have learned – in 2012. Many of these lessons are timeless, yet investors don't always heed them.

1) Following the herd can get you trampled

Story continues below advertisement

When Apple was trading for more than $700 back in September, the media were filled with breathless stories about folks waiting in line for the iPhone 5 and analysts boosting their price targets to $800, $900 and – in a couple of cases – $1,000 or more. Then came the Apple Maps fiasco and the ouster of the company's top software and retail execs, which – together with growing competition from Samsung and Microsoft – sent the stock down more than 25 per cent. When everyone agrees that a stock is going higher, it often means risks are being ignored.

2) Beware of stocks bearing high yields

The next time you're tempted by a stock's outsized dividend yield, ask yourself why the payout is so high. Yellow Media is the poster child for why investors need to be skeptical of high yields and in 2012 investors learned that lesson again with stocks such as TransAlta and AGF Management.

3) IPOs can be deliver a KO to your portfolio

Facebook. Zynga. Groupon. 'Nuff said.

4) Be cautious with commodities

Care to guess how many of the 10 worst performers on the S&P/TSX composite index in 2012 are commodities companies? Answer: 10. Six miners of gold and other metals, three oil and gas producers and one energy services company. Resource producers face myriad challenges: They have no control over the price of commodities; they face ever-rising labour and production costs; and (when they have operations in other countries) they can be at the mercy of foreign governments that don't always play nice.

Story continues below advertisement

5) Safety comes with a price

With five-year GICs yielding less than 2.5 per cent and 10-year Government of Canada bonds yielding less than 2 per cent, fixed-income investors are barely keeping up with inflation. Parking a portion of your money in government bonds and GICs is fine, but investors who refuse to take on any risk will likely pay a steep price in the long run by missing out on the potentially higher returns of stocks.

READERS: Is there an investing lesson that we missed? What did 2012 teach you? Share your thoughts in the comments section.

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter