I do have an awful confession

August 23, 2012, 4:05 pm Bruce Jackson Yahoo!7

It's felt like a tough year for investors, and even though the index is up in 2012 not all stocks have been delivering.

Europeans are on holiday. The Yanks are off too, enjoying the summer swelter.

Whilst they holiday, the euro has rallied to a seven-week high against the US dollar.

Can we suggest they stay on holiday? Our portfolios are certainly beneficiaries, with the S&P/ASX 200 up 10% from its June lows.

In what has felt like a tough year for investors, the index is up 8% so far in 2012. Not great, but not bad either, especially if you add on dividends.

Speaking of dividends, many high-yielding blue chips have been on fire in 2012...

Westfield (ASX: WDC) up 26%. Westpac (ASX: WBC) up 25%. ANZ (ASX: ANZ) up 21%. Wesfarmers (ASX: WES) up 18%. Woolworths (ASX: WOW) up 16%.

Are you feeling good?

You should be. Or perhaps too many are invested in too many mining stocks...

Illuka Resources (ASX: ILU) down 33%. OZ Minerals (ASX: OZL) down 29%. Atlas Iron (ASX: AGO) down 30%. Lynas (ASX: LYC) down 33%.

We've largely avoided the sector, although I do have an awful confession...

This year, I bought some Lynas shares for my personal portfolio. I thought the downside was limited, especially compared to the upside. That was 30% ago. Oops.

Still, diversification and a couple of big winners have more than saved the day. The Lynas story is one for another day.

Waiting for the next shoe to fall

Despite markets having a solid 2012, investors remain nervous, waiting for the next shoe to fall.

They worry Europe remains a ticking time-bomb, detonation deferred until incompetent politicians and nervous traders return from their summer hiatus.

They worry the US economic recovery is anaemic, and that the world’s largest economy will slip back into recession.

Here in Australia, they worry the mining boom is over, the economy is flat-lining, house prices are stuck and electricity bills are rising.

Worry not, Foolish readers. You can’t predict what European and Chinese politicians may or may not do. You can’t do anything about the mining boom. And you certainly don’t know which way markets will move this week, this month and even this year.

Epic fail

Still, it doesn’t stop the pundits from trying, as witnessed by Jim Paulsen of Well’s Capital Management who told Reuters that major indexes will likely stall until the end of the month. He sees equities "teetering around this high until September, then we decide if the market is indeed making a move higher or if it's going to fail.”

We wonder what a “fail” looks like... are we talking a 10% correction, a 20% bear market, or a 1987-style crash?

We’ll leave all the failing, and the short-term trading to the hedge fund managers. A report out yesterday from Goldman Sachs showed the average hedge fund has underperformed the S&P 500 index by more than 7% so far in 2012.

No wonder. They worry too much. They trade too much. They go short when markets are falling. They go long when markets are booming. In short, they fall for the age-old trick of selling low and buying high.

And, to make things worse, hedge fund managers are paid millions and millions of dollars.

Poor rich hedge fund

Earlier this month, legendary hedge fund manager Louis Bacon threw in the towel, saying he was running out of investment ideas and as a result is returning $2 billion to investors.

Forbes reports Bacon “has been unable to come up with an investment play that would benefit from the turmoil in Europe -- namely the volatility around the debt crisis there.”

As of March, Bacon had a net worth of $1.4 billion. We guess he won’t go without some of the nicer things in life in his retirement. He may not have an investment play, but he’s not short of a buck or two.

Admittedly, unlike Bacon, we’re not worth $1.4 billion, don’t manage $14 billion in assets and don’t charge investors a management fee of 3% as well as a 25% performance fee.

But we have been investing for close to a quarter of a century. We have seen bear markets, bull markets, sideways markets and market crashes. In short, we know a thing or two about investing.

No worry

Here at The Motley Fool, we like to keep things simple. We don’t try to second-guess Angela Merkel, Ben Bernanke, Glenn Stevens or Mario Draghi. We don’t try to time the markets. We don’t flip into and out of stocks. We don’t speculate.

We invest. We invest in companies, not stock prices. We invest for the long-term. And we rely on the beauty of compounding returns, aided and abetted by dividend reinvestment, to generate significant wealth.

No fees. No fund managers. No worry.

''If you’re looking for some high yielding ASX shares, look no further than “Secure Your Future with 3 Rock-Solid Dividend Stocks”. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

Bruce Jackson has an interest in Westpac, ANZ, Wesfarmers, Woolworths and Lynas. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).''

Stock Quotes

e.g. BHP, CBA
COMPARE & SAVE