Investment returns were not good in 2022. As THIS ARTICLE from Ben Carlson suggests there were several culprits for the malaise.
But could a major reason have been overlooked? Could it be that that investment prices fell because they had gone up too much in the first place.
This is the “Ockham’s razor” option, also known as “the simplest explanation is usually the best one”.
But it doesn’t make for a good headline and, given the media is obsessed with clicks and views so they can sell adverts, such a simple explanation is ignored on the whole.
But we can’t, won’t and haven’t ignored it.
I wrote about The Pendulum back in December 2018, after a full year of not great returns (sounds familiar?).
I stated that, as the investment pendulum swings back and forth it passes through the average return. And so it did, and so it will again, it always prevails because it is rooted in unchanging human behaviour. Behaviour that is as old and as consistent as time.
I offer as evidence THIS GRAPH showing how the value of global equities has advanced over the last nearly 15 years.
Here are some headlines:
- We can see the peak in May 2008 and then the financial crisis leading to the low of February 2009.
- Then all the way up to January 2018 before a drop to December 2018 (when I wrote “The Pendulum”).
- Then it climbed to February 2020 and slumped to March 2020.
- Before climbing to November 2021 and slumping to October 2022.
- Since when it has started to climb again.
Diving in further I see a total of 7 peaks and troughs of varying magnitude over 15 years.
That is a lot of back and forth. A lot of over optimism and over pessimism. A lot of consistent human behaviour.
The optimists win out of course – despite all the crises the value of the world’s companies is much higher than it was 15 years ago. And much higher than inflation has been over the same period.
My point is simple, but unexciting – human nature will never change, it is reliable, the back and forth will never cease, the pendulum will keep swinging and sticking with it will pay out.