SIMON BROWN: Lessons from 2022

Finally, the home stretch to the end of what has been a long and hard year is in sight. It has been doubly tough; as consumers we’ve been hit hard with rising rates and inflation, and for investors it has, in parts, been a horror show. Sure, the pandemic crash of 2020 was nasty, but it was also over before many of us really noticed it had happened.

Looking back, here are some of my lessons from 2022 for investors.

The first is that cash remains king. I always have a good amount of cash in my investment portfolio, and this year it served two purposes.

One  is that it never goes down, even as markets fall. But the bigger reason is for when opportunity offers itself — and we had plenty this year. Suddenly a stock you’ve long liked but that has always been expensive is now cheap, but you need the cash to be able to buy it.

A further lesson is that the fear of missing out (Fomo) is real and dangerous. How many of us bought one of the high-flying tech stocks only because they were flying, to then see them crash back to earth? The most important decision when investing is what price you’re prepared to pay. It is the only thing you have control over as an investor. We need to be prudent and refuse to pay crazy valuations.

Diversification hit hard this year as the only free lunch, according to Warren Buffett. If you had a highly concentrated portfolio of tech stocks you are very much poorer as the year draws to an end. Equally, if you were only offshore there was nowhere to hide, while the JSE has done all right — especially with financials having had a good year.

Another thing to remember is that unloved can quickly become well loved, indeed. Just look at energy, especially Thungela. A sector that is very much out of favour is worth keeping an eye on, because if (and I stress it’s if, not when) it comes back into favour, there will be lots of money to be made. But again, be patient and wait until the love returns, because being early is often indistinguishable from being wrong.

We were reminded that bear markets are just nasty. But the good news is that they always pass and in time the bull returns. Remember that investing is all about the long term, and you need patience to let the long term unfold for those better returns.

Exchange traded funds (ETFs) really were the winners. Sure, some of my ETFs were under water this year. But none of them was  anywhere near the disaster of certain stocks, such as Meta (-66% in the year to date), Amazon (-47%) or any of the long list of large losers in 2022. I especially like buying ETFs when markets are down because I get more bang for my buck.

So it’s been a year with lots of lessons — many of them painful. In time, it will become a year of memories as markets recover and our portfolios return to their glory days.