As of Thursday November 22nd, the benchmark index had gained 7.6% since the beginning of the year. As astute investors know, share prices are only part of the story. Including dividends, the index gained a full 12.7% so far in 2012.
In some ways, that’s been the story of 2012. Investors are shunning higher risk investments for the safety and security of income paying shares.
We started the year with the ASX 200 at 4,101 points, and closed last Thursday(22nd Novemeber) at 4,413.
Of course, picking the start and end of a year gives you a reference point, but the market is often more volatile than that.
There were multiple movements of 100 points in both directions during the year, as investors reacted (and likely over-reacted) to short term news.
The first four months of 2012 were good for investors. The index gained 8% in that short time, and many investors hoped we were seeing the beginning of a concerted improvement in share prices.
Scarcely had that thought taken hold and we were looking down the barrel of a one month fall of over 10% by the first days of June.
No sooner had pessimism taken over than a concerted recovery begun. The ASX 200 put on almost 600 points – 14.7% - between June and mid-October, before losing another 3% since.
By the way, if you think you’re seeing a theme, you’re right. The market ebbs and flows over time – as pessimism and optimism variously take hold. Successful investing (we call it Foolish investing – with a capital ‘F’) requires a long term approach.
In a world where some people think long term can be the end of next month, the business-focussed investor with a truly long term focus has a great advantage. Don’t get me wrong – there are a multitude of pundits who claim ‘buy to hold’ investing is dead... they just keep getting It wrong.
For the constituent companies on the ASX 200, 2012 has been the best of times and the worst of times. Three companies saw their share prices double this year, while eleven suffered a halving (or worse) of their market value.
Five of the best in 2012
Striking it rich
The biggest gainer on the ASX 200 this year was Buru Energy (ASX: BRU). The oil and gas explorer had success early in 2012 with both solid expansion and positive drilling results in the Canning Basin, located in the Kimberley region of Western Australia.
Despite not yet earning a profit, shareholders have given Buru an $863 million market capitalisation thanks largely to an impressive resource base – investors will be hoping the company can turn it into handsome profits in the years ahead.
Bucking the trend
If you’ve been reading the economics textbooks, you’ll know there’s no future in an Australian company selling small whitegoods. After all, the Chinese make it cheaper, can own their own brands, and the market is immensely competitive, with a plethora of low-priced competitors.
And yet, amongst that, Breville Group (ASX: BRG) is the exception that proves the rule. It has gone from strength to strength, with its shares doubling throughout 2012. Whether it can continue to win the fight against cheaper whitegoods remains to be seen, but so far, so good.
Profit from renting
If you’ve ever been offered a Flexirent payment plan when buying a new computer, television or washing machine, you’ve considered doing business with Flexigroup (ASX: FXL).
The company has a number of different business channels, but each takes the basic premise of renting rather than buying the product for a relatively low weekly or monthly fee. Of course, both Flexigroup and the retailer are making money out of the deal, but many consumers and businesses prefer the cashflow benefits over the upfront savings.
By way of proof, the company’s profit has jumped 80% in four years, and the share price has doubled since the beginning of the year.
Just as Breville has defied conventional wisdom, Super Retail Group (ASX: SUL) has grown sales and profit in a tough retail environment, when others – notably our department stores – have been struggling to deliver positive momentum.
The company behind Super Cheap Auto, Rebel Sport and Boating, Camping, Fishing has doubled sales and increased profit 2.5 times in four years – right through the lowest parts of the economic cycle.
It’s taken on a large lick of debt to do it, but investors don’t seem overly concerned, sending shares up over 60% in 2012, and more than 100% in the last three years.
The online revolution continues
We take much of our online lives for granted these days. Online banking, shopping, classifieds and news feels so familiar, it’s hard to imagine our lives without these things.
Carsales.com (ASX: CRZ) is just one of the big winners in the online classifieds space. The company has landed with a splash, having grown sales by 50% in the last three years and profit by 65%.
Shares have risen 60% in 2012, and investors remain fans of the company. Its biggest challenge will be finding enough growth, given its online dominance seems already cemented.
Five of the worst in 2012
Ratings, wherefore art thou?
2012 has been an enormously tough year for all traditional media outlets, and Ten Network (ASX: TEN) is faring worst.
The network – replete with a board that includes Lachlan Murdoch, Gina Rinehart and ‘Hungry’ Jack Cowin – has struggled to attract viewers this year, at times not only being the lowest rating commercial network, but also being beaten by the ABC.
The company has lost almost two-thirds of its market value in 2012, and has responded with significant cost cutting in its news and current affairs departments, but the challenge for this business is top line growth rather than cost cutting.
At the mercy of commodity pricing
At The Motley Fool, we love businesses with sustainable competitive advantages. Unfortunately for miners, that’s incredibly difficult when you’re selling a product with little differentiation from your competition, and for which the pricing is set globally.
Where nickel pricing goes, so does the profit – and share price – of Mirabela Nickel (ASX: MBN). That’s largely been the story of the company this year, having bottomed out at a share price of $0.22 in July, before rebounding somewhat since... little comfort for long-term shareholders.
Downgrades spooking investors
We started 2012 in an optimistic frame of mind on commodity prices, a hope which was dashed as the iron ore price got crunched mid-year. Miners responded by cancelling, delaying or scaling back exploration and development activities – very bad news for companies providing services to the mining industry.
Front and centre was Boart Longyear (ASX: BLY), which downgraded earnings twice in the past few months. With so much investor uncertainty, they didn’t respond favourably to the downgrades, and a halving in share price was the result.
Another media company in the firing line
As with Ten Network, Seven West Media (ASX: SWM) was also hurt by a poor advertising market. Seven has largely been able to sustain its ratings performance (not withstanding a resurgent Nine with its reinvigorated News performance and some hit shows) and grew profit in 2012.
Unfortunately, a poor outlook has seen earnings estimates downgraded and pessimistic investors have taken the air out of the company’s share price, falling over 50% this year.
A company soap opera
One story that has persisted right throughout 2012 is that of Billabong International (ASX: BBG).
The surfwear company has had an almighty fall from grace, with the share price falling from over $14 five years ago to under $1. It famously rejected a takeover offer at a much higher price, then had two potential buyers walk away more recently, as the share price continued to fall.
It seems that this story is far from over, and may well continue on into 2013. Long-suffering investors will hope next year brings better news than this year’s 50% share price fall.
Focussing on the winners and losers provides a look into the companies performing well and badly, and the trends that are impacting our economy.
Of course, the worst way to invest is through the rear vision mirror – some of the worst may well be some of next year’s best, while others may earn a second year on this list.
Instead, Foolish (with a capital ‘F’) investors should be focusing on buying quality companies and paying a reasonable price – letting compounding do the heavy lifting.
Here’s to a prosperous and successful 2013.
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