It's already the second week of the new year, but there is still time to make those resolutions and commit yourself to some form of improvement in 2013. The past year was an interesting period in the world of investing -- IPO disasters, corporate wrongdoing, CEO snafus, activist mayhem, and plenty more. Last year gave us much to learn from, whether we are freshly minted stock pickers or seasoned analysts. Let's take a look at three lessons courtesy of 2012 and how they can make you a better investor for 2013 and beyond.
Realize that the trend is not your friend; it actually hates you
Though never an integral philosophy for the long-term investor, momentum investing still appeals to many. The next time you are tempted to hit the buy button on a hot stock, remember a basic rule of gravity: Objects gain momentum when they are going downhill. Let's take the most obvious example of a too-hot-to-touch stock in 2012: Apple (NASDAQ: AAPL ) . Apple began 2012 with a stock price of around $410. The company had just come off a red-hot holiday season and was wowing investors and analysts with tremendous year-over-year growth driven by iPhones and iPads.
The stock wasted no time, climbing $130 by March 1 and hitting $618 by the beginning of April. Here at the Fool, few articles found more readers than those that mentioned the hottest tech stock of all time. The stock then reversed course -- pulling back around 15% in midyear. I had crowds of people asking me if now was the time to buy the "discounted" stock. Apple had posted a (then) rare earnings miss, there was anxiety over iPhone subsidies running up, and, of course, the usual market schizophrenia caused above-average volatility. Even so, an investor who bought on Jan. 2 earned a nice return in a quick six months.
For those who waited until the desirable midyear pullback, though, the "trend" was nearly nonexistent. Coming up on the iPhone 5 release, the stock soared above $700 for the first time, thrilling investors. Skipping to year's end, those who bought the stock in July for around $600 ended the year down 5%.
If the last two paragraphs read rather frenetically, that's because Apple's stock was just that. Plenty of traders focused solely on buying and selling Apple in 2012, and some made good money doing so. For an investor trying to time his or her entry, this was not the case.
In 2013, don't play into market madness; it won't help you buy your stocks at a discount. Stay focused on fundamentals and erase the time factor from your decision-making.
Don't buy into sexy
If there is one clear lesson that 2012 gifted to us, it's that the latest and greatest isn't a one-way ticket to market success. One of the year's most notable events was the Facebook (NASDAQ: FB ) IPO. With the most disruptive website in the history of the Internet enjoying a billion users and being the quintessential big-moat, high-switching-cost company, Facebook sucked in even highly conservative investors with its growth prospects. As we almost instantaneously found out, this didn't translate to the 10-bagger some were predicting. While Facebook is without a doubt an incredible company with a very compelling future, it was the fundamentals that kept the stock (to this day) below its introductory price. No matter what a company is doing, never neglect the reality behind the hype.
In 2013, if you want to avoid getting duped into another Facebook, don't buy into sexy. Remember that scene from The Matrix with the woman in the red dress who distracts the protagonist from an approaching assailant? Let the fancy stuff pass you by and keep your focus on companies that you understand and that are priced attractively.
Your analysis doesn't have to be based in theoretical physics, either. For example, keep an eye on Marathon Petroleum (NYSE: MPC ) this year. Now, admittedly, I haven't modeled Marathon out for the next five or 10 years, but I love the stock. With a forward P/E under 7, it looks cheap at a cursory glance. Now, factor in the fact that the United States will continue its foray into energy exports and worldwide production supremacy. Marathon Petroleum recently completed its purchase of a major Gulf Coast refinery -- one that will increase the company's capacity by an impressive 38%. The U.S.' and Canada's cheap oil reserves will prop up Marathon's margins, keeping profits sweet for investors. The 2.2% dividend yield will help out, too. This isn't a complicated thesis, but it's a clear and simple one that is tough to refute.
Stop reading this article
The 24-hour news cycle is killing us all. Between CNBC and the seemingly infinite number of bloggers out there, it's easy to become victim to information overload. Keep in mind that the very best analysis you can do is the most direct -- reading SEC documents, talking to competitors, or just walking down Main Street to see where the checkout line is longest.
Everyone has an opinion -- some are right and some are wrong. When you bolt for the computer every morning to read every bit of insight on your stocks, you're subjecting yourself to a lot of noise that can instill fear and doubt into your very soul.
Haven't you noticed that some of the world's greatest investors seem to distance themselves from Wall Street (philosophically and geographically)? Buffett is in Nebraska, home of the empty field. Bruce Berkowitz is in Miami enjoying the weather and local government corruption. Bill Gross is in Newport Beach, the star of his very own version of The OC. You are best off when you are unplugged from the busted-info faucet.
In 2013, commit yourself to less exposure. You'll sleep better at night, and it will likely help your portfolio, too. Best of luck to you in 2013, investors. May the Gods of Finance treat you well.
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