The year 2022 is behind us, but I suspect it’s a year that we will cherish in our collective memory for a long time. I can already see myself talking to my grandchildren some 20 years from now about this “ annus horribilis ” and how we collectively managed to get through this difficult time.
At the same time, the beginning of a new year is the time to take stock and I believe that the moment is particularly propitious for the investor to do such an exercise.
So here are the few conclusions that I personally draw from the 2022 stock market year that will no doubt be remembered for a long time:
– The stock market is unpredictable and short-term forecasts are worthless. Step back to early 2022 and when all seemed well for investors. Who could have predicted that a pandemic would completely change the look of the planet in a matter of weeks? Lots of people will present their forecasts for the next year to you – let’s face it, forecasts generally only extrapolate from the recent past and, by definition, cannot take into account unpredictable events that may occur in the future. any time. 2022 will remind us that the investor must be constantly on his guard and ready for any eventuality.
– The market is abnormally concentrated and this is dangerous. In my opinion, the flagship index of the American stock market, the S&P 500, has historically been the most representative of the North American economy since it is composed of nearly the 500 largest American public companies, representing each of the main industries economy. However, 2022 and recent years have changed this observation somewhat. At the end of 2022, six S&P 500 companies (Facebook, Amazon.com, Apple, Netflix, Google (Alphabet) and Microsoft) accounted for almost 25% of the index. Additionally, their outstanding stock market performance in 2022 provided nearly 75% of the performance of the S&P 500 during the period. In my opinion, such a concentration of an index and performance is spelled “DANGER”.
– Diversification takes on its full value in difficult conditions. At the worst of the market slide in 2022, when the vast majority of stock stocks were down sharply, some more defensive stocks held up very well. I personally believe that an investor should aim for a balance in his portfolio, between defensive stocks and growth stocks.
– The financial health of companies is still the best insurance policy. In a financial crisis, the financially strongest companies usually emerge even stronger, while those that were too indebted may not survive.
– Long live companies whose business model is flexible. Last year’s lockdown period showed us the great value of a flexible business model that can quickly adjust to almost any circumstance.
– Very expensive titles can become even more expensive. At the start of the year, I was of the opinion that a stock like Tesla was far too expensive for the long-term investor. However, the title was one of the big winners of 2022 with a return of 743%! I pity those who might have been tempted to sell the stock short. I conclude that securities that are expensive can become even more expensive (which is not a valid reason to buy them).
– The Fed is ready to do anything to allow the economy to rebound. There’s a popular investment saying that you shouldn’t fight the Fed . Historically low interest rates and the immeasurable sums that have been injected by Western governments into the economy to get it through the pandemic are a very powerful driver for the value of any financial asset, including that of the stock market.