Investment Lessons From 2022
Regardless of investment preferences, this has been a tough year. However, it’s only a waste if nothing was learned in the process.
One wall in our office is dedicated to decisions that worked and those that failed. Documenting when and how you succeeded or failed is incredibly helpful to your long-term health.
To help build your investment wall and guiding principles, here are a few observations investors should consider.
- If it sounds too good to be true it is. Book smarts and street smarts both have their place. The wise investor has a good sense of what they don’t know.
- Follow the incentives as they reveal motivations. Ask individuals or businesses why they made decisions to learn and see if it sounds logical.
- The United States has flaws and growing pains, but it is still the best country in the world to live in.
- Politicians do not run businesses and great business owners do not quit just because a politician gets elected. Politicians do not determine capitalistic success.
- Recessions happen on average every seven years. The last 14 years of growth were an anomaly. However, the US is undefeated in beating every recession faced.
- The only dumb question is the one not asked. It is far better to look foolish but informed, as opposed to silent and then suffer.
- Following the herd can run you straight off a cliff. Don’t do things you can’t understand just because others are, even if those people appear smart or successful.
- Stock markets have down quarters and down years, and that’s okay. Investing is a journey, with an eye toward the future. Understand your time horizon and goals. Don’t be influenced by people playing a different game over different time frames.
- Don’t get so comfortable you fail to adapt when circumstances meaningfully change.
- Long term, cash is a terrible investment. Inflation will destroy you. Short-term, cash is financial oxygen. Without liquidity, you can’t breathe. Cash should always be the first asset an investor accumulates.
- Inflation is real but impacts people differently depending upon their stage in life.
- Be careful about people bragging about investment wins. They are generally liars. They do not deliver audited financials revealing the full picture.
- Whether TV, YouTube, or another medium, they exist to sell advertising. They do not exist to deliver unbiased advice.
- Be cautious with predictions into perpetuity. When things are down, they predict it will only get worse. When things are good, they assume it will always be good. This has been a tough year, but the market increases three out of every four years. Things will improve, for the long-term investor.
- The stock market has always been volatile. However, people never complain about volatility while stocks are rising.
- Warren Buffett has said investors should own businesses they would be happy owning if stuck on a desert island for 10 years. A stock is a business. Do not treat your businesses like dice at the craps table in Las Vegas.
- If you owned all of Discount Tire or HEB, two well known, well run private businesses, would you sell them every week, or every time interest rates increased or every time there was an election? Of course not. Similarly, do you day trade your house or car? No. That would be ridiculous. Buy great businesses. Focus on their sales, earnings and cash flows. Hold them for long time frames.
- Fear Of Missing Out and Get Rich Quick preys upon emotions for fast solutions to long-term problems. The easy solution is to spend less than you make. Invest and stay invested over decades. This is such commonsense advice, but people cannot leave well enough alone. They attempt to get rich overnight and end up falling for schemes, scams and other bad choices.
- Be wary of throwing money into new things that sound interesting but aren’t functional investments. Be on high alert if pushed by celebrity endorsements.
- Just because an invention changes the world, does not make it a good investment. Autos, airlines and the internet have been terrible investments. Crypto may very well join the list.
Good luck building out your wall of knowledge. Best wishes for logical and disciplined decisions in 2023.