The Investment Perspective – January 2023

“Neither the investing method nor the fundamentals of the business are right or wrong because the mood of the market is favourable or unfavourable toward the “stock”. That is because when you really think about it, “stocks” (shares) are all about the financials and the trading price, the share price… the cash up value. What matters more is the economics of the business” 

Peter Flannery

Key Points:

• We can expect more uncertainty and therefore more volatility = good.
• We might be moving closer to a sustainable upward market trend.
• ‘Choppy sideways’ could be the mantra for much of 2023.
• Let’s not forget, markets can surprise on the downside and the upside.

2022, then…

The above charts show share market winners and losers over 2022.

There’s nothing like stating the obvious to be annoying, however 2022 was a volatile year.  More volatile than many years gone by but not the most volatile. 

More to the point is how you feel about it?

If you feel unhappy, disappointed, annoyed etc. etc., then perhaps a conversation with your trusted adviser in the very near future might be a good idea?  Just call 0800 11 90 80 or email invest@wiseplanning.co.nz.

You may feel that way if you adhere to the belief that the trading price and the intrinsic value are one and the same thing – no matter what anyone says (!)

Defensive or conservative?

At WISEplanning we broadly categorise our clients into two groups:

1. Defensive investors – they are unconcerned about performance and returns. Their primary focus is safety of capital.  They strongly dislike volatility.
2. Conservative investors – they strongly dislike risk but love growth, particularly compounding growth over time.

Then we have those investors that are, shall we say, more advanced than others.  For them, the opportunity to maximise performance is more important than short-term volatility.

Less advanced investors who can also be defensive (but not always), tend to see volatility as risk and therefore it’s to be avoided.

Advanced investors generally see volatility as opportunity.  They know that lower trading prices means better buying.

What can be challenging though for every investor is the time it can take for markets and trading prices to work through various cycles.

Just because we get bored or tired of volatility and the downward movement of trading prices, it makes no difference to ‘mister market’.  Mister market does not care.

No matter though, we wait for good prices to come to us and then take action accordingly.  Not too complicated really but not easy.  That’s because it can require patience.

For those who easily resonate with volatility as opportunity, being patient is less difficult / easier, depending on who you talk to.

…. then 2023

So what is in store for us over 2023 then?

I predict… no I don’t, I’m not in the business of predicting!

However based on my analysis of current data there would appear to be some logic to the view that, with rising interest rates and inflation moderating (although we’re not there yet) there is the possibility that we may see the upward trend in markets become more sustainable at some point over 2023.

Markets move down, move sideways, up, in an uneven and unpredictable fashion until we look back at some point in the future and realise that in fact they’ve actually been chopping their way in an upward direction. Difficult to see in the midst of it however in hindsight it becomes clear.

The point?

We need to be early to the game, not late.

The best gains to be had are across the bottom of the trough whenever that might be.

Being early means that we’ll invest and see our more recent investments decline.  To some that’s disheartening.

For those focused on growth, it’s simply the signal to continue to buy more at a price that is now even more favourable.

Although we can’t expect markets or even an individual trading price to suddenly spring up just because we’ve invested, when we look back we can see clearly that investing in the midst of all the noise and turmoil was actually the best price and the best time.

What can we see now?

We’ve talked about interest rates and inflation.  Interest rates may well continue to rise in the US and other countries but at a slower pace and eventually those increases will stop, leaving interest rates perhaps at a more elevated level, depending on the length and depth of any recession.

Recession is part of the next phase but in my view, more importantly, earnings announcements out of the US is something to really watch (if you have the appetite otherwise don’t worry, I’ll keep an eye on it for you).

We are into earnings season and so those earnings announcements will be important with regard to trading prices and general market direction, especially over the next two quarters.

Another well-worn phrase already!

Choppy sideways…

I saw this phrase earlier this year and I think it correctly covers what we are seeing now.  I would add to that my own phrase which goes like this: choppy sideways and up.

Now of course I can’t predict when that might happen although I can say that it wouldn’t surprise me if by this time next year markets have returned to an upward trend, albeit in a “choppy fashion.”

What about recession?

Remember earnings announcements and revisions will be pivotal.  With regard to recession it would depend on the length and depth of any recession which at this stage looks modest.

That’s not a prediction but simply reflecting what current data is suggesting.

Play the markets?

I was chatting with one of my team members the other day.  I explained that, at least in my experience, over the last 4 decades or so that many people appear to not achieve what they could financially because they sometimes try to play the markets.

I have learned that most of us are better off to play our strategy rather than play the markets, if you see what I mean?

“My problem lies in reconciling my growth habits with my net income.”

– Errol Flynn