Come prepared with an umbrella

umbrella in rain

What We Learnt in 2022

After two years in which all our attention was focused on Covid-19 and its impact on our lives, 2022 has been a welcome return to the type of concerns that consumed us before March 2020.

Rather than daily updated counters of infections and deaths, we’ve returned to our previous news diet of election polls, a soccer World Cup, and (unfortunately) war zone death tallies. For most of us, it’s been a return to our daily lives of family, work, and pleasure.

The year also brought a second Bear market (a market decline of more than 20%) in three years. While not as sharp as the 2020 event, we saw a protracted decline of 25% that played out over ten months from January to October.

While we are still in negative territory, with a few concerns unanswered, I remain confident that capital markets will, over time, reward those who invest and stay invested.

I reflect below on three lessons from 2022 that we are taking into the new year.


The Current Thing Comes and Goes

The entire globe being obsessed with one idea is not a new occurrence, but modern technology means it’s no longer a phenomenon reserved for World Wars and World Cups.

Bad news sells. We cycle through one fashionable outrage after another, most of which are unlikely to matter much in five years. The nature of the connected world we live in means most people are almost powerless to resist getting caught up in the idea of the day. And we lap it up.

However, I know that making long-term investment decisions based on short-term concerns is not a recipe for success. The lesson? 2023 will bring its own events that will dictate our lives and financial market sentiment for a few months. I recommend preparing yourself for the next news outrage and see it for what it is; an unhelpful distraction.


Things Work Until They Don’t

Similar to the Current Thing, there is almost always an investment idea in vogue. For the last few years, this has been the concept of Digital Money (cryptocurrency, decentralised finance, non-fungible tokens).

Starting as a small scene within the technology community, it quickly became a mainstream phenomenon as it rode one wave after another.

Over the last few years, a guise of regulation and a flood of Venture Capital money (the “smart money”) entered the space. The fear of missing out resulted in many regular investors joining the fray, further inflating the perceived value of this new asset class.

While all new ideas deserve consideration, they must clear a very high bar before it deserves a sizeable allocation of your hard-earned money. That time has not yet come, and with the enormous failures of governance and fraud seen in this space over the last few months, we feel safe putting keeping this idea where it belongs; in bed.

In contrast, things that have always worked continue to steadily march along, sometimes dipping, but nevertheless relentlessly marching, creating wealth for those with patience and discipline. If something sounds too good to be true or stirs up the hope of quick riches, it may be best to steer clear.


Live Like A Local, Not a Tourist

A trip to a favourite travel destination is often planned very carefully. A significant factor for most visitors is seasonal weather patterns that can ruin a holiday.

Understandably, tourists avoid problematic periods when possible. In contrast, locals understand that the seasons change and know how to stick it out.

Similarly, smart investors understand that even diversified portfolios experience temporary declines and volatility as they are tossed around by the waves of the latest media-driven human sentiment.

As we head into 2023, on the back of what looks to be the first calendar year of negative returns since 2018, we encourage you to maintain the mindset of a local. Be aware that the financial seasons change, and rather than giving up on the destination, come prepared with an umbrella. It may not keep you completely dry, but it’ll stop you get soaking wet.

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