What We’ve Learned in 2022.

Lessons from 2022

After two years in which all of 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 sadly, ongoing updates from a European war zone.

For most of us, it’s been a return to our daily lives of family, work, and pleasure.

The year 2022 also brought a second Bear market (a 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, we remain confident that capital markets will, over time, reward those who invest and stay invested.

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

  1. The ‘Current Thing’ Comes and Goes

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

Chosen by those who control the media narrative, we cycle through one fashionable outrage after another, not many of which are likely to matter much in five years. The nature of the connected world we live in means that most people are almost powerless to resist getting caught up in the idea of the day.

However, we’ve learnt that making long-term investment decisions based on short-term concerns is not a recipe for success. The lesson? The year 2023 will bring its own events that will dictate our lives and financial market sentiment for a few months. We recommend you prepare yourself to see these for what they are; a distraction.

  1. Things Work Until They Don’t

Similar to the Current Thing, there is almost always an investment idea that is 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 (FOMO) resulted in many regular investors joining the fray, further inflating the perceived value of this new asset class.

While all new ideas deserve our 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 this idea to bed.

In contrast, the things that have always worked continue to march along, making those with patience and discipline wealthy, slowly. If something sounds too good to be true or stirs up the hope of quick riches, it may be best to steer clear.

  1. 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 the 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 what to do.

Similarly, smart investors understand that even diversified portfolios experience temporary declines and volatility as they are tossed around by the waves of 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 – and sunglasses!

Alan Smith

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