As I work on putting together my portfolio’s end-of-year performance review, I thought I’d drop a brief note on the state of the markets today.
As of January 24th, the stock market has fully recovered from its 2022-23 drawdown (if we go by the S&P 500 price index). NASDAQ though is still down about 2% off its peak. So this bear market turned out to be just another “Garden Variety” kind — where stocks go down by 25% or so. We see these more frequently. Since 1945, there have been 11 such garden variety bears. Since 1990 when I started investing, we’ve seen four of these in addition to the two big “Mega Meltdown” bears.
Notwithstanding all the consternations about sticky inflation, rapidly rising rates, and some mid-size bank collapses along the way, we did not see a recession (so far) or a mega meltdown bear market (where stocks fall by 50% or more). Though I have lived through two of them previously (2000 – 03 and 2008 – 2005 periods). Federal Reserve has a blunt tool to control inflation and it seems to be working.
It was just last month when I wrote that perhaps 2024 will not be the bookend to this downcycle. I said that the recovery could be slow and may take two years or more. Well, it turns out that the market had other ideas. It recovered faster than I thought it would.
Ken Fisher calls the stock market The Great Humiliator TGH: Its aim is to humiliate as many as people as it can for as many dollars as it can.
Fortunately, in my case I didn’t change course just because I thought the market will take longer to recover. I didn’t bet any money on it. I stayed invested. Faster recovery pleasantly surprised me, no doubt, but that’s about the extent of it.
So is this the beginning of a new bull market? We can’t obviously know for sure. But Ken Fisher has this to say about the sentiments surrounding every new bull market. From his book: The Little Book of Market Myths
Folks often disbelieve new bull markets—often for years after they begin. But particularly in the early stages. “How can it be a bull market when everything is so bad?” they wonder. And everything probably is pretty bad. Bull markets often start before economic contractions bottom. But stocks don’t boom because things are improving. Rather, they boom because everyone expects Armageddon, but at a point, Armageddon doesn’t happen, and folks realize reality isn’t so dire. The panic was overdone.
Sounds just about right. This is how it played out in 2023. The potential Armageddon in our case was big bank failures and a deep recession.
As of today, the S&P 500 is just a shade above its December 2021 peak. The stocks that I bought in 2022 (using my dry powder cash) are up by 36%. My overall stock portfolio is close to its 2022 peak but not quite there yet. The reason is that the NASDAQ index has been lagging a bit and my portfolio is somewhat tech heavy.
And now I go about selling some stocks and replenishing my dry powder cash. See my dry powder investing rules here.
My hectic pace of investing in 2022 bore fruit in less than two years. [I made 45 separate stock purchases in 2022 alone, as I documented here.] Even though I train my mind to be a long-term investor and bind myself to strict investing rules to avoid emotions-driven actions. Still, it’s hard not to feel a bit thrilled by the prospect of new market highs. I’m human after all.
I am also stricken by a little feeling of regret. Regret that I didn’t put more cash in stocks in 2022 (I only invested 45% of my dry powder cash). I could have made more money if I had stronger convictions… But this is just another trick my mind plays with me. This know-it-all-along feeling is part of my hindsight bias. I clearly could not have known back then when the market would recover. There’s no way I could make more money than someone who can correctly predict market swings. Neither do I know a good forecaster. I am better off strictly following my investing rules and not give in to false temptations.
This post is not meant to be a victory lap. For stock investing is not a race and there is no finish line to cross. It’s a bit like a roller coaster ride. Those who ride the ups and downs are well rewarded because stocks grow in value over long periods of time.
This is just the beginning of 2024. Let’s see what other new surprises this year has in store for us. Happy investing y’all.
Next post, I will show my annual portfolio performance and analyze how I did in last 3 and 5 years.