In 2023, the idea of diversifying your stock portfolio to minimize risk proved to be a disappointing strategy. A wide array of sectors such as financials, retailers, drugs, foods, utilities, autos, airlines, and oils saw steep declines if the timing of investments was not perfect. This reality challenges the classic investment rule of not putting all your eggs in one basket, forcing investors to confront the harsh truth that what they once believed to be sound advice, did not stand up to 2023’s market conditions.
When we survey the sectors suffering from these unexpected declines, the banking sector emerges as an area hit particularly hard. KeyCorp’s solid footprint in the Cleveland economy and robust 6.6% dividend yield couldn’t prevent it from dropping from $20 in February to around $12. Huntington Bancshares also saw a similar decline, dropping to $11 from $15. Despite the compelling stories presented by their CEOs on financial programs like “Mad Money” and “Squawk on the Street,” the performance of banks like KeyCorp and Huntington was disappointing.
First Horizon, a successful Memphis bank, failed to see progress as it had eagerly agreed to sell itself for $13.4 billion to Toronto-Dominion (TD), only to see the deal fall apart after the banking crisis. Despite the shakiness in the banking sector and the decline in the stock prices for these regional banks, there is still a sense of missed opportunity in these otherwise good franchises.
Meanwhile, retailers like Macy’s, Nordstrom, Kohl’s, and the Gap all struggled to mount a comeback following the banking crisis, causing their yields to drop sharply. The drugmaker Pfizer, whose dividend yields 5%, was unable to rally despite its strong performance during the pandemic. Even the merger of Celgene by Bristol-Myers, valued at $74 billion, did not yield expected results.
The food industry also saw significant drops, particularly for J.M. Smucker, which recently plummeted to $111 from $130. Investors questioned management’s decision to double down on Hostess Brands instead of exploring other potential investment avenues. Additionally, the safety net provided by brands such as Aveeno, Tylenol, Band-Aid, Benadryl, and Neutrogena eroded as the consumer healthcare division of Johnson & Johnson saw extensive damage.
The medical device and utility sectors also suffered significant declines, with companies like Moderna, Edwards, Medtronic, Zimmer Biomet, Becton Dickenson, Baxter, Thermo Fisher, and Danaher all facing substantial losses.
In 2023, the idea of diversification as a protective measure against financial losses has been severely challenged, calling into question the traditional investment strategies in an ever-changing market landscape.
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