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7 Market Lessons from Last Year

Although I don’t like talking about the actual stock market too often (weird for a financial planner to say), I figured it might be worth sharing some lessons the market taught us this past year. It is a quick two-minute read. 

Market Forecasts are Mostly Guesses:

  • Every year there is a rollout of predictions of what the market will do the next year and where it will end up. Every year it is way off too.
  • For 2023, the average market growth prediction from the experts was to be up 6%.
  • In reality, it was up roughly 4.5X that guess.
  • Seems about as accurate as saying you are driving from Cleveland to New York, but end up in Miami. 

Volatility is Normal and a Good Thing:

  • Let’s look at some data over the last 95 years of the S&P500.
  • 3% declines average 7 times a year.
  • 5% declines – 3 times a year
  • 10% decline – 1 time a year
  • 15% decline – once every 2 years
  • 20% decline – once every 3-4 years.
  • Do you even remember the market was down 10% at one point last year? 

Valuations Don’t Always Mean Anything:

  • A popular measuring point is the value of the S&P500.
  • There was a legendary investor banging the drum about a massive drop in the market a few years back because valuations were higher than normal.
  • The market responded by being up nearly 29%.
  • Similar story last year. 

Last Year’s Winners Don’t Necessarily Mean a Thing:

  • One of my favorite charts is basically an investing version of the periodic table of elements.
  • I like it because it shows year by year how the main asset classes did.
  • In 2021 REITS (Real Estate Investment Trusts) were up over 40%. The next year they were down nearly 25%.
  • 2022 saw Commodities lead the way with returns of over 16%. In 2023 they returned to last place with returns of roughly -8%.  
  • Large Caps led 2023 with 26% growth. Stay tuned! 

Panicked Selling Can Be Painful:

  • Let’s look at some data over the last 20 years on hypothetical S&P500 portfolios.
  • Assume you sold when this portfolio dropped 10%.
  • You then buy back in 10 days later.
  • This action would have resulted in you missing on 70% of the gains versus just holding on. 

Life and Returns Can Come at You Fast:

  • The first 10 months of last year were not kind to Small Cap funds.
  • Most were negative.
  • However, the final two months were great as they went from negative to double-digit returns.
  • This isn’t unusual either.
  • Over the last 97 years we have had 1,164 months. If you were to remove the top performing 97 months the remaining 1,067 would average returns of 0%. Those 97 months, or 8.3% of the total months, averaged annual returns of over 10%.
  • Again, good luck with the timing! 

Cool Companies Don’t Necessarily Bring Hot Returns:

  • Last year we saw the disappearance or bankruptcy of companies like We Work, Bird (scooter company) and Instant Brands (your Instant Pot).
  • One of my favorite data points is when we look at S&P500 winners over the last 25 years.
  • Coming in first place is a product marketed to “knucklehead young men.” Monster Energy outpaced Apple (2nd place) over the last 25 years and it really wasn’t close with an average annual return of over 37%.
  • Two other members of the Top 5 during this period are boring old companies. Tractor Supply and Old Dominion Freight.
  • Number 3 on the list is Amazon.