It’s always better to reflect on yourself and learn from past mistakes. Let’s look back and discuss some investment lessons that 2022 taught us! This will help us make lesser mistakes as we move forward in our investing journey!
Volatility is in the Nature of Equities!
The only way to avoid fearing market volatility is to accept it. This is evident by observing the market movements for most of 2022, where markets fell between 20 and 30% over a matter of months due to various reasons such as the war, monetary tightening, and spiralling inflation.
The lesson learnt here is that if you own stocks, you own volatility. The latter comes inbuilt into stocks and cannot be separated.
Time in the Market Is More Important That Timing the Market
Investors who bought stocks at the start of 2022 might have losses in their portfolios, but staying with fundamentally sound stocks will reap long-term benefits.
For instance, investors who tried to catch the bottom of the markets in March-May 2022 were unable to do so because the market was volatile.
Neither a Bullish Nor a Bearish Phase Lasts Forever
Investors who bought stocks in early 2022, thinking that the bullish market trends that started in mid-2020 and continued till late 2021 would spill in through 2022, found themselves on the wrong side of the boat. The year 2022 could have been better for investors than the previous two years.
This confirms that neither a bullish nor a bearish phase in the stock markets lasts forever. Hence, making investment decisions due to the fear of missing out is not the right way!
Not all IPOs are Money-Making Machines!
Investors need to understand that not all IPOs are money-minting machines. This can be understood as how companies and promoters take advantage of overall bullish sentiments among investors as an opportune time to come up with their IPOs at inflated issue prices compared to the company fundamentals. This learning is evident from the poor performances of many fin-tech companies listed in late 2021 and how it has destroyed investors’ wealth massively! Also, only a few companies came up with their IPOs in 2022 as the markets were volatile!
Asset Allocation Matters!
The year 2021 saw a massive rise in new Demat account openings as many investors started chasing stocks and increased the overall proportion of equities in their portfolios. However, as the world entered 2022, stock market participants were again reminded that asset allocation matters in the end. As a result, investors with asset allocation according to their risk-taking capabilities were better off.
These are some significant investment lessons that 2022 taught us. Investors should never forget that their patience will be tested repeatedly by the markets, but the conviction to hold on to stocks will be rewarded. Hence, it is essential to avoid repeating these mistakes to refine one’s investment process and decision-making!