The curtains are finally closed on the year 2023 and I must say that this year has been a very good year for investors. I mean how often do you see big-cap stocks like Meta(193.66% YTD), Tesla(105.02% YTD), and Amazon(82.94% YTD) do multiple triple-digit returns in one year? For context, a $1,000 investment in Meta on January 1st would produce a $1,936 return on investment ROI. This kind of return is uncommon for large-cap stocks!
On the heels of an abysmal 2022, most investors were paranoid and toed the bearish path predicting hawkish sentiments. However, since January of this year, I have consistently predicted a rebound following the 2022 dip and the dovish sentiments from the United States US feds.
The US is the financial epicenter of the world and decisions taken by the US Federal Reserves tend to have a direct impact on global economies. In 2020 for example, following the novel Coronavirus outbreak, the US feds reduced interest rates to zero.
According to the Washington Post, that was the most dramatic decision by the feds since 2008! What did this decision cause? Cryptocurrencies like Bitcoin increased by 416% that year, and the S&P index a benchmark index tracking the performance of the 500 leading publicly traded companies in the US appreciated by 18.02%. The index typically posts an average return of 10.13% since 1957!
It is basic economics that with the easing of interest rates, borrowing is encouraged and the economy grows as a result. However, since cash is abundant, we may reach a peak and inflation may bite hard.
Once this happens, measures are then put in place to curb this inflation. Interest rates are hiked again.
This reduction in interest rates continued as the US feds took a dovish stance all through 2020 and 2021. The S&P was up 28.47% in 2021, the NASDAQ posted a 21.4% return that same year.
Digital currencies like Bitcoin(60%), Ethereum (404.2%), and Solana (11,192.42%) all hit their all-time highs. Logically, reducing interest rates would mean a shift in investor sentiments and more investments in risky assets like stocks, digital currencies, commodities, etc.
In 2022, we saw a sharp decline in the performance of risky assets. Why? You guessed right! The Feds started hiking interest rates to curb the growing inflation. As per data made available by Forbes, interest rates were hiked by 75 basis points for four consecutive months between June and November 2022. The result? Tesla (-68.49%), Apple(-29.61%), S&P(-20.58%), NASDAQ(-34.68%), Bitcoin(-64.14%). In 2022, investors bled!
In early 2023, despite doomsday predictions, most of my articles hinted at a rebound in risk assets. Why? You probably guessed right again. The stance of the Feds on interest rates was changing. Even though inflation in the US was high, through the period between February and July, interest rates were hiked by only 25 bps. The hike was being slowed! A prime time for risk assets to appreciate and the rest they say is history!
As investors and speculators, the question here is, did you take advantage of expert opinion to grow your portfolio in 2023?
It is almost impossible to discuss investment and neglect the Russia-Ukraine. From the saga surrounding the Nord pipeline to fears of further escalation, investors kept their eyes on ears on the ground to track events as they happened! Historically, during war times commodities like gold performed well. So it came as no surprise to most of us that the spot price of gold hit its all-time high of $2150 on December 3, 2023.
Many experts argue that 2023 would have been exponentially better in terms of returns for investors if not for the war situation.
This is because investors are skeptical during war times and because of the heightened investment risks, most of them opt for safer assets like treasury bills, company-issued bills, government bonds, etc.
The tension in the Middle East escalated again. Every passing day there was newly released footage of the conflict as casualties and refugees grew.
Tensions began escalating on October 7th and during that time the spot price of gold was $1832.59. Just one month later on November 8, the price increased by over $100 and traded at around $1976.
The Dollar index was around 106.313. By November 1, it hit the 107s. In October, the S&P slipped by 2.1%. NASDAQ and the DOW followed suit with a 2.8% and 1.3% decline respectively. What did we see during this period? A flight to safety during wartimes!
The Nigerian stock market was a surprise performer this year. The benchmark index of the exchange, the NGX All Share Index ASI posted a 44.43% YTD return. The NGX ASI outperformed the S&P, FTSE100, and DJI all put together. Outperformed the DAX, NASDAQ,
Inflation in Nigeria soared in 2023 as the prices of everyday goods and services rose exponentially. As of December 2022, inflation in Nigeria stood at 21.34%, by September 2023, these figures have risen to 27.33%.
This inflation in Nigeria caused investors to struggle as returns struggled to even outperform local inflation. For example one of the top-performing stocks in the Nigerian stock exchange Airtel Africa(15.5% YTD) failed to outperform inflation this year. This means even if your investments turn out to be profitable, they are eroded by the high inflation!
In 2023 alone, the Naira fell by 48.7% about the Dollar. The Naira fell to lows that were erstwhile unfathomable. At a point it felt like the next time one checked the rates, they were sure it was worse than the last time. Inadvertently, this led to the depreciation of Naira-based assets. For some investors, their only wrongdoing was failing to diversify away from the Naira.
For example, foreign investors who invested in local companies and businesses struggled with earning returns as Dollar scarcity hit, and converting returns to Dollar denominations at such premiums was foolhardy.
As early as March, a bulk of my articles here on Nairametrics sought to teach people how and why to diversify their portfolio to dollar-based assets. The signs were clear as day early on that the Naira would suffer throughout the year. Inflation wasn’t slowing down either.
Despite how self-centered this sounds, as investors our first loyalty is to our bottom line. Once ethics is out of the way, your decisions must be first beneficial to your portfolio before anything else. The problem of the ailing Naira is left to the apex bank and policymakers, the investor must safeguard their assets from depreciation. Just like a chronic gambler who finds himself betting against their favorite team, the investor may sometimes face a situation where personal interests would overshadow other factors.
Here is an article I wrote in November that can help you with all you need to diversify your portfolio to dollar-based assets.
The collapse of one of the biggest cryptocurrency exchanges FTX chaired by Sam Bankman-Fried in November last year sent tremor waves throughout the digital currency landscape. The prices of most tokens were completely obliterated with FTT, the native token of exchange losing 99% of its value! Digital currencies were going to zero, and most “experts” screamed to anyone who cared to listen. Fast forward to November this year and the recovery is well underway.
Now, while no one could have said digital currencies couldn’t have just disappeared, it was unlikely. Additionally, as investors, you must have what is called an exit strategy. As your investment loses a certain percentage you must have plans of cutting your losses. This means that even if the market gets completely decimated, your losses are predetermined.
As Warren Buffett succinctly puts it, “Be greedy when everyone is scared and scared when everyone is greedy”.
The top tech stocks in the US performed well, the S&P, NASDAQ, and DJI all exceeded expectations, digital currencies wowed investors, and commodities and ETFs were not left out either. By several metrics, this was an easy year for investors! A naive investor may mistake themselves for an investment superstar given how easy it was this year to find themselves in profitable plays.
Stock picking, for example, is considered high risk and experts advise on investing in Exchange Traded Funds ETFs but this year, stock pickers had a field day. The strategy was just picking any random blue chip stock like Tesla, or Nvidia, and sitting as profits rolled in!
Have you ever taken the time to read the disclaimers below investment reports and financial advice? One line stands out. “Past performance does not guarantee future returns”. The thing about past performances is they are “past”. Some investors erroneously believe that they can replicate the same performance over and over again. This is almost impossible since economic conditions will never present the same opportunities.
While this year was an easy one and you may have made great returns, you should be wary of losing all of these returns the next year. Keep a cool head and stay grounded as you carefully evaluate the ever-changing economic climate and make sound decisions on the heels of that.
As the year draws to an end you must review your investment decisions and find areas where you faltered. Where did you make the most mistakes? Were you in a hurry to liquidate your positions? Did you do your due diligence before investing? Were you too conservative in your approach and failed to maximize your returns potential? Were you too exposed to one asset?
Self-introspection is crucial to becoming a better investor. In fact, without proper self-introspection and improvement, growth as an investor is like the proverbial carrot in front of the donkey; always in sight but never attained.
2023 has been a stellar year, with hints of pausing further interest rate hikes, 2024 may toe the same path. Our articles are not the holy grail of investing nor are they financial advice but they can help you make more informed decisions. Let’s do it again next year! Till then have a great holiday!
