As we bid farewell to the year 2023, a year filled with economic twists and turns, it seems fitting to reflect on the valuable lessons that have come about in the past year.
In the same spirit, I would like to share some of my favourite snippets from The Smart Investor in 2023 with all of you today. Take it as the greatest hits from the year, if you will.
Here goes …
How to Set Up Your Stocks for Success in 2023 and Beyond
“As you move forward, putting your thoughts on paper can help you focus.
When you have to articulate in words why you bought a stock, any fuzziness in your thinking is instantly exposed, informing you on where you need to achieve greater clarity.
This simple process can help you identify what you are clear on and where you need to improve.”
In an Instant-Reaction Age, Patience Will Win the Day
“We live in an age of reaction.
For every new piece of information that comes out, the response is instantaneous.
That’s especially true for the stock market, where there is no shortage of major news, business developments, or statistics demanding immediate attention.
The problem does not just lie in the reaction.
From the start, most of this information pushed out may not be as useful as you think.”
Don’t Learn the Wrong Lessons from Market Crashes
“The concurrent rise in interest rates and falling stock prices last year gives rise to the tempting idea that you can time your entry into the stock market.
All you have to do, you may reason, is to figure out when the US central bank will stop raising interest rates.
Beware, dear investors. It’s a mental trap.
While the two factors may seem correlated, this premise does not hold upon closer scrutiny.”
The NASDAQ (INDEXNASDAQ: .IXIC) is approaching its all time highs in 2023 even as interest rates are higher than 2022. The US Federal Reserve has indicated that it will cut rates in 2024 but has not done so.
Why You Should be Wary of ETFs
“Here’s the MOST important thing people don’t tell you …
When an index declines, you will have no idea what is happening.
You shouldn’t.
The whole idea of investing in ETFs is to be hands-off, therefore you will have to stay the course despite not knowing what exactly is occurring in the stocks within the index.
If you start digging into the 30 companies, it defeats the purpose of investing in index funds, in my book.
Take note, that’s the deal you have to accept if you decide to invest.
Speaking of jittery investors, a passive investment vehicle such as index ETFs will not save you if you are actively trading in and out of the fund.
An index ETF is only as good as the investor’s temperament.”
I still own unit trusts which track the US index since 2006. To be clear, index ETFs are NOT bad investment vehicles. But you should know what you are signing up for.
The Greatest Gift of the Stock Market Right Now
“Last year, business growth was stalled by a host of issues, ranging from unfavourable exchange rates to supply chain disruptions and rising interest rates.
But behind these troubles, you are being gifted real-live data on a select group of businesses that thrived despite the circumstances.
Best of all, this information is not hidden in any way.
… you don’t have to make any guesses on which companies will do well in bad times, you can sieve through the available data and see for yourself.
At the end of this process, you should have a list of potential stocks to buy.”
The Secret Weapon of Successful Investors: Journalling
“As humans, we tend to misremember our past experiences especially when it involves major events.
On this note, the past three years have been full of challenging episodes that can distort our memories and directly impact the lessons we learn.
Therein lies the issue.
If you remember the wrong things, you will draw the wrong conclusions.
Even worse, you will be applying these wrong lessons in the future over and over again.
This is why journalling plays such an important role.”
Buying a Good Stock is Easy. But Can You Hold?
“Netflix’s stock price history shows you how hard it is to buy and hold a stock, even when it turns out to be a big winner.
It sounds easy in theory. You just buy a stock and do nothing.
But in reality, many investors lose their nerve and sell too soon, before the stock reaches its full potential.
That’s a painful mistake, because you miss out on the chance to make huge gains on your investment. It’s like having a winning lottery ticket in your hands and throwing it away.”
I still own shares of Netflix (NASDAQ: NFLX) and have been since 2007.
Margin of Safety: The Most Important Words in Investing
“Consider the contrast between value and growth investing.
In a value investing approach, as you have seen earlier, your task is to figure whether a business which ran into trouble is not not doing as badly as it seems.
You are compensated, in this case, with a lower stock price.
In comparison, when you pick growing businesses which are already doing well, all you have to figure out is whether it can continue doing well in the future.
This business puzzle, to me, is easier to solve.”
Should You Invest in Bonds or Stocks?
“Bonds play a role in your portfolio. So do stocks.
Always remember why these different investment classes are in your portfolio in the first place.
[Bond] yields may not be high but that’s not the point. The bond’s purpose — a predictable return over a fixed time period — is more important than how much higher of a yield you can get out of these bonds.
For those who are thinking five to 10 years ahead, stocks have the potential to deliver a higher return.”
Get Smart: Invest to Live
As the curtains come down in 2023, we would like to thank all of you for journeying with us.
As we move forward, armed with the insights from the past year, let us recognise that each challenge is an opportunity to refine our approach and inch closer to our financial goals.
May the lessons of 2023 serve as a compass, guiding investors towards informed decisions and a prosperous future.
Cheers to the new year!
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Disclosure: Chin Hui Leong owns shares of Netflix
