For 2023: Look Forward, Not Back

Most people, investors or not, tend to base their current views on what is most recent in memory. In good times, we may expect them to continue for the foreseeable future; in bad times, we often underestimate our ability to move forward. We all tend to “drive by the rear-view mirror” to some extent, basing our decision making on what has just happened.

In investing, this may be amplified. We can see significant market movements based on the prevailing sentiment. It has been said that “In the short run, the market is a voting machine. But in the long run, it is a weighing machine.” Prices can overshoot underlying “fair values” in both directions during the course of a cycle. While it is never easy to see asset prices under pressure, 2022 saw a return to more reasonable fair values and perhaps more thoughtful ways of deploying capital, which can be viewed as healthy.

One of the challenges of investing is that building wealth doesn’t always follow a steady course. We may forget that the investing road can be a long one — depending on our objectives, sometimes as long as our lifetimes — and what happens from year to year often has less significance down the road.

Though not to overlook the challenges of today, it is important to keep perspective. Many of the same issues we faced in 2022 persist: geopolitical conflict, sustained inflation and high interest rates — and now, the expectation of slower economic growth with the central banks’ continued attempts to reel in inflation. Yet, we may be well positioned to endure these times. Our financial system continues to be strong; most companies and individuals are not heavily indebted, a previous driver of serious downturns. While stronger labour markets continue to complicate central bank efforts, they may lessen the impact of any slowdown. And while there will always be short-term setbacks, corporate profits and economies have grown over time. This isn’t likely to change.

It is instructive that throughout the turbulence of 2022, renowned investor Warren Buffett added to his portfolio; in fact, a record amount of purchases.¹ Buffett uses the inevitable down periods to continue building wealth for the future, strong in his conviction that brighter days lie ahead. While Buffett has outperformed the markets over time, consider also that he has underperformed the S&P 500 more than 40 percent of the time on an annual basis.² It is a reminder that even for the most respected investors, investing is never a smooth road.

The road ahead can be a long one — be guided accordingly. As Buffett’s actions remind us, it is important not to let the short-term outlook obstruct our view as we continue planning for the future. The rear-view mirror is great for perspective on where we’ve just been, but don’t necessarily let what you’ve seen dominate your drive to the future.

After a challenging year, we remain grateful for your continued confidence in our services. May the year ahead be filled with brighter days and stronger markets.