A happy and prosperous New Year to all readers of this column. I cannot guarantee you happiness but I am very confident that 2014 will be prosperous for equity investors. New Year is traditionally a time to make a fresh start and to resolve to mend your ways but my message is to stick to what was already working.
The Santa Claus rally finally arrived to produce a sparkling end to the old year. We may well see a correction over the first few days of 2014 but the rally is by no means over. I stand by the forecast I first made in late October at the London Investor Show that the FTSE 100 Index will reach a new peak above 7,000 points some time this year.
There will be no more quantitative easing in the UK and in the United States the Fed will progressively taper its own programmes. If tapering causes stock markets to fall, that will provide an opportunity to buy shares.
I do not expect the Bank of England to raise interest rates this year, and certainly not before October at the earliest, but if that does happen the rise will be no more than half a point and the subsequent fall in the stock market will again present a buying opportunity.
Retailing
The claim of private equity that retailers thrive as private companies, where directors are freed from short term demands, has been given credence by sparkling Christmas trading figures from John Lewis (JLH) and House of Fraser.
It is particularly notable that John Lewis stuck to the traditional idea that you refuse to cut prices in the run-up to Christmas, the most important trading period of the year, and start the sales on Boxing Day.
Debenhams (DEB), in contrast, joined the mad rush to cut prices as Christmas approached, a policy that is seriously damaging the retail sector. I don’t understand why chief financial officer Simon Herrick has subsequently fallen on his sword. This is a faulty marketing strategy, not financial jiggery pokery.
Debenhams shares have dropped along with those of Marks & Spencer (MKS) and Next (NXT). This is one sector where you need to pick particularly carefully and to be ready to sell out as fortunes ebb and flow rather then hold for the long term.
Apart from retaining my holding in 
Sainsbury (SBRY), still the best investment among supermarkets in my view, I shall be staying well clear of retailers – and that applies to the House of Fraser IPO when it comes.
Banking
I seriously underestimated the scale of the banking crisis when it broke and I have become increasingly reticent to call the bottom of the market but I do believe that this will be the year it starts to come right again.
Despite the propensity of the sector to produce a new scandal just as we seem to be getting over the previous one, and despite attempts of the authorities on both sides of the Atlantic to impose tougher rules, the worst is surely over. I took the opportunity of making a modest purchase of HSBC (HSBA) shares when they dipped late last year and am quite content to be nursing a tiny loss so far. The next dividend will easily put me in the black.
The fact that the UK government has actually been able to sell some banking shares and to indicate that further sales are on their way is a positive sign. Neither Lloyds (LLOY) nor RBS (RBS) can take off until the overhang of shares is eliminated, or at least is seriously depleted. I note that Morningstar analyst Stephen Ellis has a hankering for Lloyds shares.
It is highly likely that when banks recover they will gather considerable momentum as the follies of the past are forgotten. That time should begin this year.
Housebuilding
This sector looks to have further to go but beware. A lot of good news is already in the shares prices, and that includes my holdings in Barratt Developments (BDEV) and Taylor Wimpey (TW.). Yields are generally very poor but will improve as profits and dividends are increased.
Don’t think of taking profits at this stage but the shares will mark time until those dividend increases start to come through.
Gold
The precious metal is now around £730 an ounce and still slipping. A weak price in dollars has been exacerbated for UK holders by the strength of sterling, a reminder that those UK (and European) residents who buy gold are taking a gamble on currency movements as well as on the gold price.
I cannot see any merit in holding gold now. The Tories scorned Gordon Brown for selling gold too cheaply. Finance ministers and central bankers who have held onto their gold holdings at the top of the market are equally culpable.
Gold almost certainly has further to fall. It is definitely not worth the risk of buying for recovery at this stage. That also goes for shares in gold miners.
I will be looking at more sectors next week. In the meantime, follow the rule that the best investments are solid companies paying solid dividends. There, I’ve said it again.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
