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2020 market review

By Sam Instone - January 10, 2019

A lot can happen in a year.

The Earth orbits the Sun.

130 million babies are born.

And the stock market proves (yet again)…

Why we cannot possibly predict what’s yet to come.

Some people spend an inordinate amount of time…

Trying to figure out what the markets will do in a year…

Often reflecting on the previous year…

For signs and ‘evidence’ of what might be.

At the end of 2017 2019

(After a particularly strong year for the market)…

Speculators had a lot to say about their predictions for 2020the following year.

No 'strategist' predicted a global pandemic, 34% market crash, huge FAANMG stock gains and an overall 12% S&P500 market gain.

The above isn't just attributable to COVID-19.

Wars, pandemics, natural disasters and other tail risk events are a feature of the markets, not a bug.

The unprecedented occurs with alarming regularity.

This is why the forecasters never stand a chance over the course of a year.

On 28 December 2017 13 January 2020, a well-known, popular news investing site said:

The U.S. equity market is in for yet another year of strength – albeit not as meteoric as 2017There will be no recession in 2020..

Reflecting on what actually happened in 2018…

The preceding quote was hyperbole at best.

Here’s a headline from another popular site during the same period…

Does the stock market still have room to run

The real evidence however…

Shows that the past is never prologue.

In fact, a quick look at this graph…

Shows the stark differences between 2017 and 2018.

S&P 300 20`7v2018-1

Compared to the promising start of 2017

2018 saw a sharp, and sudden, drop.

Losses were felt across the board.

Accross the board losses

Looking further at the S&P 500…

2017 and 2018 were like night and day.

In 2017 there were 62 new all-time highs

While in 2018 there were only 18.

There wasn’t a single down month in the entire year of 2017

Which was historic…

As it hadn’t happened since 1926.

In contrast, there were 4 down months all with relatively large drops in 2018

(-3.6%, -2.8%, -6.8% and -9.0%).

In 2017 the maximum drawdown from peak-to-trough was just -2.8%...

One of the lowest intra-year losses in history.

The next year, the max drawdown was just short of 20%...

Over the span of less than 3 months.

(Let’s also not forget the 10% correction that happened earlier in 2018).

Investors found it almost impossible to lose money in 2017

Yet in 2018, they found it difficult to make money.

Perhaps 2017 was too much of a good thing

And in retrospect, 2018 seemed much worse in comparison.

Last year was truly unique.

Financial experts have even gone so far as to say:

“The moves seen in 2018 are unlike any in the past. They’re so unique that there is no historical precedent.”

Investors: take predictions with a pinch of salt

The media…

Your financial adviser

Friends and family…

Are not prophets.

Crystal Ball Final

2018 2020 may have been a rocky year.

But that should have little to no effect on your investment in 2019 2021.

It’s about your methodology and not the market’s scorecard.

Instead of chasing past performance

Remember these very important bits of advice…

  • Market ups and downs are inevitable. Make sure your portfolio prepares you for all eventualities.
  • Always try to remain calm in order to make the best possible decisions regarding your investments.
  • Don’t try to time the market – no one can predict when a change will happen.
  • Stay invested – as Warren Buffet says: “The risks of being out of the game are huge compared to the risks of being in it”.
  • If the market crashes – buy instead of sell. It’s during these times when high-quality businesses are ‘on sale’.
  • Focus on your long-term goals – in the long run, your returns will hold great value.

Every year provides investors with a different experience.

But by exercising patience, restraint and an optimistic view…

Each experience can be a good one…

Whether in terms of returns…

Or learnings.

Chat to us if you’re looking for the right financial advice in 2019…

To see you through the inevitable market changes that will occur.

Save and invest for a better life