February 1, 2023

One thing the earlier and later parts of 2022 had in common is the rude shocks. Events previously considered unlikely did happen. For instance, very few people predicted that Russia would drop missiles in Kyiv in February, even though it was a known fact that the two countries had a fraught relationship for years. But that happened.

Investors and speculators knew that the invasion could have a ripple effect on most assets. So, many of them quickly shoved all predictions of economic rebound under the carpet. After all, it doesn’t take an economics degree to know that wartimes are bad for the economy. 

But just when investors (especially those in the crypto market) thought the winter was over, FTX happened. The crypto exchange once thought to be too big to fail, collapsed much to the surprise of everyone. 

For lack of better words, 2022 “swallowed” the enormous gains we saw in 2021. The 26.6% gain in the S&P in 2021 was quickly erased by a sharp 18.54% drop. Bitcoin’s 59.64% gains have since been overshadowed by a massive 62.27% drop.  

Most economies scrambled to stay afloat. Meanwhile, currencies like the naira, the British pound sterling and the cedi all hit lows that haven’t been seen in decades. 

A dramatic year for investors: If 2022 taught us anything, it is the fact that the old methods might fail sometimes. In the last five years, investors have made good returns by betting on big-cap American stocks like Amazon, Tesla and Meta(Facebook). In 2022, these stocks shed double digits in their share prices.

For some, their only wrongdoing was stacking naira-based assets. This year saw the Naira plummet close to N900/$ in the parallel market. 

As it turns out, some people did not consider this a problem, at least in the short term. Those who remit money to loved ones from overseas suddenly became more loved by family members here in Nigeria as the same dollar equivalent just some months ago fortuitously swelled when converted to naira. 

Another group of people who found these times exciting were dealers in imported merchandise. Every hike in prices was blamed on the falling naira.  

How did your investments perform? Did you get burnt by any of the crazy events that happened this year?  

  • Did you foresee the huge drop across several assets? If you did how did you prepare for it? 
  • Did you sell off your digital assets or do you still want to hold them? 
  • Did the skyrocketing inflation affect your purchasing power? How did you adapt? 
  • Did you invest in yourself? A new certification or education that boosted your career and employability chances? 
  • Did you earn money while you were sleeping or did your investments not allow you to sleep? 
  • Did you diversify your investment into Dollar based assets or did your assets devalue? 
  • Did you eventually convert your Naira to Dollar at its peak because everyone was screaming “1000/$ before January”? 

Everyone is an investing superstar when assets are making a good run. But the real challenge is when they are bleeding. Hedge funds that naturally thrive in volatile markets made a killing this year. 

In 2022 for example, throwing your investments across various assets still wouldn’t have saved you as the dip was across asset classes. For the 5th time since 1928, the S&P 500 and the 10 YR US Treasuries had negative returns. 

So this is not necessarily because your investment strategies are wrong or you have made poor decisions, it’s simply because the general economic climate has been harsh. 

So this isn’t a time to beat yourself up as you look at how badly some of your assets have performed this year. Even the legendary stock speculator George Soros still has a few losing streaks under his belt.   

Expectation versus reality: One problem investors face is expecting the same level of returns in different economic conditions. In 2022, several warning signs emerged that foretold a slow year. 

Most smart investors began to lower their expectations and reduce exposure to risky assets. We also saw many banks, including the CBN, hike interest rates to figures never before seen. These and several other reasons are why we have seen increased interest in traditional “safe” assets like treasury bills and bonds.    

On the plus side, this may be the best opportunity to pick up that asset that you believe would perform in the long run. Smart investors buy at low prices and sell at a higher prices. As Warren Buffett said “Be fearful when others are greedy, and greedy when others are fearful” 

While you may not have met your targets in terms of returns for the year, or you lost some money as these assets plummeted, remember that the game of investing is a marathon and not a sprint. The goal is to arrive at good returns at the end of the day, the losses are part of the game. You may take two steps forward and a step backwards, but the most important thing is that progress is being made.                                                     

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