With the 2023 New Year’s Celebrations in our rearview mirror. All the confetti has been swept up and the NYC ball is in storage waiting to be dropped to ring in 2024, many of us are getting ready to celebrate Easter and begin some spring cleaning.
So as we begin planning for the Spring and look forward to the Summer, there are a few lessons we can use as we’re cleaning out the junk and making room for something new. This is also true of our investments and how we can use the events of 2022 to make us better investors in 2023.
2022 hit many of us with some surprises that tested us in a variety of ways. It tested our patience, our confidence, and our resolve. We were surprised by Russia invading Ukraine. We were surprised by just how high gas prices got. We were surprised by just how high inflation rose and then by the Fed’s actions to increase interest rates in response. This is especially true for investors who experience some of the worst market returns since 2008. Both stocks and bonds suffered double-digit losses in 2022.
2. Market Forecasts from the “Experts” are Notoriously Inaccurate
To begin 2022, Fourteen highly thought-of financial firms submitted their “predictions” for how the markets for perform in 2022. These predictions for the S&P 500 range from 4400 to 5330.
The “expert” consensus estimate was 4950.
The S&P 500 ended the year at 3840. Way off of any of these predictions.
3. Volatility is unpredictable and Uncontrollable
If you receive our email, you would have noticed that we were making our readers aware of everything the market moved up or down 1%, when the year started. In 2017, this only happened 8 times. In 2022, it happened 129 times. That’s over 50% of the trading days for the entire year. Keeping up with the 1% newsletter just wasn’t reasonable.
We can’t control just how volatile the future will be but was can control how we react to it.
Here’s an example: Imagine your friends Dave and Lisa bought the same stock at $10/share. It goes up and down as they do, and at times, by great amounts.
12 months later they both sell the stock and the same time for 12/share but they each had completely different experiences.
See Dave would always track the performance of the stock and would ride the emotional rollercoaster as it moved up and down. Lisa, on the other hand, never went on that ride as she didn’t watch its performance as closely as Dave did.
Three Things To Remember In The Future
- Surprises will happen in the future
- Forecasts from the “Experts” are fun to read but are usually misleading
- Finally, market volatility has very little meaning, and it’s more about how closely we watch it and how we react to it.
So as we’re cleaning out the old and preparing for something new, maybe it’s time to apply these lessons to a new way of investing. Let us know if you’d like to apply these lessons to your investment strategy.
2. Jonathan Ferro on Twitter (@Ferrotv), January 3, 2022
3. Rosenberg Research 4. Jay Mooreland. Behavioral Finance Network
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