Welcome to 2023
Dear 2022: Adios. Arrivederci. Au Revoir. Adeus. Auf Wiedersehen. Sayōnara. Goodbye!
And Hello, 2023! May you please be kinder than your predecessor?
This past year will be one that most of us will never forget in the markets. There was inflation. There was just a tiny, little bit of….okay, there was endless talk and commentary and speculation about the Fed. And there were losses—lots of losses. The U.S. bond market had its worst year in history. The S&P 500 had its worst year since 2008, and the Nasdaq declined even more.
2022 was also a triumph of value over growth. The more value, the better. The more growth, the worse. Below are the returns of the major indices (before dividends) compared to the company run by the value investor extraordinaire, Warren Buffett, as well as the Vanguard Value ETF. Also listed is the poster child for growth investing in recent years, the ARK Innovation ETF.
As you can see, it was worse for some than others. And if you leaned into value all year, instead of being a bad year, it was a year better described as meh or fine or a little boring.
What does 2023 have in store? We don’t know. Neither does anyone else, but there will be plenty of predictions and price targets. And maybe, just maybe, those targets will be as wildly wrong about 2023 as they were about 2022.
2022 may have seen plenty of losses in the stock and bond markets, but corporate earnings and profit margins held up well, overall. Will 2023 be the year when slowing growth and higher interest costs eat away at earnings? Maybe. Will it be the year when the investment commentary of the world pays less attention to the Fed? Unlikely.
While we don’t make the prediction with any high degree of confidence, we will speculate that 2022 was the beginning of a cycle where active investing will matter again—at least for 2023 and likely for quite a bit while longer. The shift to passive has helped democratize investing and lower costs across the industry, which has been great for the average investor. But it also created trends and bubbles that got out of hand, and those willing to sift through the wreckage both present and, possibly, in the near future will reap the rewards that come when gumption and competence work together.
We wish you all the best in 2023! We appreciate you spending some time with us each week, and we’re looking forward to seeing what the new year will bring.
Tweets of the Week
In Case You Missed it…
Mohnish Pabrai's Talk with UNC Kenan-Flagler School's Investment Management Club
What Works In Markets & Life w/ John Spears
2022 Position Review - by Harris Kupperman
Cannabis’ Nuclear Winter - by Aaron Edelheit
The Business Brew Podcast: Henry Reardon - Asymmetric Contrarian
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