Two thousand twenty two was a rough year for equities. Many "pulled in their horns" and sold out of the market.
Don't swear off the market at this point. Yes, 2023 is going to be a tough year too. There are a lot of difficult economic headwinds to navigate.
Would you buy more groceries because prices shot up or avoid grocery purchases because prices fell significantly? No, you wouldn’t. The funny thing is that this phenomenon happens all the time in equity markets, whereas in most other economic markets, people want more of a product when prices fall and less when prices rise. This is econ 101.
Many people have passionately chased the growth stocks trend during a long bull market trend. While a small percentage will perform outstandingly in the future, most will likely fail to meet even marginal expectations. Many “hopium” stocks are down 80 to 90 percent. It is likely that we’ll see a significant number stay at these low valuations. Worse still will be that bankruptcies will spread.
At this juncture in the market cycle, having “dry powder” and owning quality companies is essential. Having cash enables investors to take advantage of “sales” of high-quality goods at discounted prices. The quality stocks will likely be “babies thrown out with the bathwater” and good deals on quality stocks will avail themselves as many scramble for the exits.
Being ready and willing to take advantage of sales of quality companies will be very important in the coming year. After all, the real money is not made during bull markets, but during bear markets.
Be smart, be well-read, be aware and be successful.
“Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
