Key Lessons for Investors from 2022: The year in the News and Market Returns
As 2022 – a truly eventful year in equity and bond markets - nears its close, analysts are being asked about their expectations for 2023. The media uses these surveys to generate eye-catching headlines, but rarely does anyone go back to look at what they forecasted last year.
Regular readers of this blog are all too aware that we are most certainly not in the business of trying to forecast markets. This is regularly evident during our quarterly market review, where we constantly highlight that market predictions are a fool’s errand and that only quarterly market reviews of the respective past quarter are an endeavor worth pursuing.
It is worth highlighting that we are not trying to shame any of the following experts whose market predictions for the past 12 months truly were way off the mark. On the contrary, many of the experts you will read about in this blog article are truly respected individuals in their fields. This blog article only tries to highlight that trying to predict future market returns is an impossible task even for the biggest experts in the field. This should remind every market participant of the “Unknown–knowns” (impact is unknown but existence is known, i.e., untapped knowledge), “Known–unknowns” (risks, especially market risk, interest rate risk, industry risk, company risk), and, of course, “Unknown–unknowns” (unfathomable uncertainty, like the start of a war in Europe).
Keeping this in mind, let’s revisit what Experts had to say in January 2022. Sam Potter, a senior writer for Bloomberg, summarized the predictions of polled experts in a brilliant Bloomberg article dated 3 January 2022:
Al Jazeera, The Conversation and Fortune Magazine gave other notable forecasts in January and February 2022:
2022 was dominated by the following major News Headlines:
Some of these News Headlines percolated down into the following Equity and Bond Market Themes during 2022:
Taking a long-term view and not succumbing to the daily news cycle is the only viable strategy for long-term investors.
Let’s first see what major events dominated the last 30 years – a very common investment horizon for the average investor:
And even though these events were initially all chalked up into the “Doom and Gloom” category, long-term investors were rewarded with solid portfolio gains (USD 1k invested from Jan 1985 until Dec 2021, rebalanced quarterly), as shown below:
Without a doubt, at each of these past major events, markets corrected downwards in the short term, but the upward trajectory always stayed intact, even after the Great Financial Crisis of 2008/2009.
What should investors make of a year like 2022?
In summary, both the news and markets are inherently unpredictable, but markets have the added benefit of delivering disciplined investors with an upward growth trajectory, as long as the investor is globally diversified:
Long-term investors should always stay disciplined and avoid falling for the “Narrative Fallacy” which the news media like to present to us after the fact, giving the impression that it could all have been forecasted:
As such, our dear readers, please repeat after us: “Even though 2022 dished out bloody noses to investors, I am a disciplined long-term investor. This, too, shall pass!”