If you’re anything like me, the Covid-years have thrown off your recollection of time. What state was the global economy in at the start of 2022? Was the UK in a lockdown or just anticipating one? Who was the prime minister? I recently retrieved my skiing jacket from the wardrobe and found a mask in the pocket. That means that this time last year we were still wearing masks. Seems odd.
In the post-Christmas news lull, I have enjoyed reviewing articles from late 2021 which predicted the outlook for the year just gone. Some were prescient (a post-lockdown surge in spending alongside choked-up supply chains will cause an inflationary surge that forces central banks to raise interest rates). Others wildly incorrect (Goldman Sachs predicted the S&P 500 would hit 5100 points).
With the benefit of hindsight, some of the carnage endured by the markets in the last twelve months feels frustratingly inevitable. At the end of 2021 inflation was already starting to pick up meaning central banks were bound to respond. Most investors knew that the economic environment was a major contributor to equity market strength and any change in circumstance would have a negative effect on companies with crazy valuations.
Other causes of the sell-off were harder to predict. In Yuval Noah Harari’s latest book, published in 2018 (a follow up to his hugely popular tomes Sapiens and Homo Deus), the historian reflects that Vladimir Putin would need to channel the maligned mentality of Stalin to send Russian troops marching towards Kyiv. But in February that’s just what he did, bringing about a crisis in the European energy market which contributed even more to inflation.
Then there was the mayhem in domestic politics. In January Boris Johnson’s post-Covid popularity was still ascending. By July he was out, paving the way for a mad autumn at Number 10, a return to austerity and frequent comments about a re-run of the ‘Winter of Discontent’. Meanwhile (whisper it), the UK’s distanced relationship with the EU has continued to provide problems for British businesses operating on the continent. Even the Brexit die-hards have been forced to retreat slightly from their view that exiting the EU would bring Britain nothing but opportunities.
And so with this reflective mindset I have jotted down a few thoughts on what 2022 has taught me as an investor.
1. Nothing lasts forever
Perhaps a bit of a downbeat…
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