One thing the before and after parts of 2022 had in common are rude surprises. Events previously considered unlikely happened. For example, very few people predicted that Russia would launch missiles at Kyiv in February, even though it was a known fact that the two countries had a tense relationship for years. But that happened.
Investors and speculators knew that the invasion could have a ripple effect on most assets. So many of them quickly pushed all predictions of economic recovery under the rug. After all, you don’t need an economics degree to know that wartime is bad for the economy.
But just when investors (especially those in the cryptocurrency market) thought winter was over, FTX happened. The crypto exchange once thought to be too big to fail has crashed to everyone’s surprise.
For lack of better words, 2022 “swallowed up” the huge gains we saw in 2021. The 26.6% gain in the S&P in 2021 was quickly erased by a sharp drop of 18.54%. Since then, Bitcoin’s 59.64% gains have been dwarfed by a massive 62.27% drop.
Most economies struggled to stay afloat. Meanwhile, currencies such as the naira, the British pound sterling and the cedi hit lows not seen in decades.
A dramatic year for investors: If 2022 taught us anything, it’s the fact that the old ways can sometimes fail. Over the past five years, investors have gotten good returns by betting on large-cap US stocks like Amazon, Tesla and Meta (Facebook). In 2022, these stocks returned double digits in their share price.
For some, their only misdeed was accumulating naira-based assets. This year, the Naira plunged to around N900/$ in the parallel market.
It turns out that some people didn’t see this as a problem, at least in the short term. Those who send money to their loved ones from abroad suddenly became more loved by family members here in Nigeria, as the same dollar equivalent just a few months ago was fortuitously increased when it was converted to naira.
Another group of people who found these times exciting were the imported merchandise dealers. Each rise in prices was attributed to the fall of the naira.
How did your investments perform? Did you get burned by any of the crazy events that happened this year?
- Did you foresee the big drop in various assets? If you did, how did you prepare for it?
- Did you sell your digital assets or do you still want to keep them?
- Has skyrocketing inflation affected your purchasing power? How did you adapt?
- Did you invest in yourself? A new certification or education that jump-started your career and employment opportunities?
- Did you earn money while you slept or did your investments not let you sleep?
- Did you diversify your investment into dollar-based assets or did your assets depreciate?
- Did you finally convert your naira to dollar at its peak because everyone was yelling “1000/$ before January”?
Everyone is a superstar investor when the assets are doing well. But the real challenge is when they are bleeding. Hedge funds that naturally thrive in volatile markets made a killing this year.
In 2022, for example, investing your investments in various assets still wouldn’t have saved you, as the decline was across all asset classes. For the fifth time since 1928, the S&P 500 and 10-year US Treasuries returned negatively.
This is not necessarily because your investment strategies are wrong or you have made bad decisions, but simply because the overall economic climate has been tough.
So this is not the time to beat yourself up by watching some of your assets perform poorly this year. Even legendary stock speculator George Soros still has a few losing streaks to his credit.
Expectation versus reality: One problem investors face is expecting the same level of returns under different economic conditions. In 2022, several warning signs emerged that heralded a slow year.
Most savvy investors began lowering their expectations and reducing exposure to risky assets. We also saw many banks, including the CBN, raise interest rates to levels never seen before. These and several other reasons explain why we have seen increased interest in traditional “safe” assets such as Treasury bills and bonds.
On the plus side, this may be the best opportunity to acquire that asset that you think will work for the long term. Smart investors buy at low prices and sell at higher prices. As Warren Buffett said: “Be fearful when others are greedy, and greedy when others are fearful.”
While you may not have hit your performance targets for the year, or lost some money as these assets tumbled, remember that the game of investing is a marathon, not a sprint. The goal is to get good returns at the end of the day, losses are part of the game. You can take two steps forward and one step back, but the most important thing is that progress is being made.