Investment Lessons Learned from 2022

With the S&P 500 currently down over 19% and the US Aggregate Bond Index down over 12%, the desire for many investors to move on from 2022 is understandable. But before we do, it’s essential to learn lessons from this year’s market to avoid repeating the same mistakes in the future. It reminds me of the famous financial author Bill Bonner who said, “When it comes to science and technology, man learns, but when it comes to love, war, and finance, he makes the same mistakes over and over again.” So let’s prove Bill wrong in 2023 by understanding some essential lessons we learned in 2022. 

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Market Excesses are Never Permanent

Coming out of 2021, capital markets were in overdrive after almost 11 years of historically low interest rates and the unprecedented monetary and fiscal stimulus delivered by the US government in response to Covid-19. While dramatic upward moves in capital markets feel good at the time, it’s important to understand that these excesses always come to an end.  

Recommendation: Develop a rebalancing strategy to take profits and redistribute those profits to areas offering more significant upside potential relative to downside risk. Unfortunately, many didn’t adhere to this principle at the back end of 2021 and gave back a substantial portion of their gains from the previous few years. 

Fundamentals Are Still Important

One of the market themes as we entered 2022 was the number of companies reaching astronomically high price levels with little to no profitability. With historically low interest rates and government stimulus creating the perfect environment for this to happen, capital was aggressively flowing to these unprofitable companies with traditional fundamentals being dismissed.  

Recommendation: Fundamentals always reign supreme over time. While there will always be short-term periods of excessive opportunity where investors throw caution to the wind, focusing on fundamentals can help avoid unnecessary capital loss. Just a few of the fundamentals our firm focuses on when evaluating companies include:

1) Financial Strength 

2) Free Cash Generation and

3) Dividend Payouts, to name a few. 

Develop your own approach to evaluating companies, but make sure fundamentals are a top priority.   

Beware of Mutual Funds/Exchange Traded Funds (ETFs) 

Unfortunately, many investors do not clearly understand what they actually own within their portfolio. This dynamic is amplified by those who use mutual funds or Exchange Traded Funds (ETFs) as their primary avenue to capital markets. Entering 2022, many investors were unaware of the built-up risk within these products and their portfolios.  

Recommendation:  Do your homework to understand better what you own and how your investments are likely to perform in various market environments. If working with an advisor, hold them accountable and make sure they clearly explain how your assets are positioned and how this positioning makes sense based on your goals. 


Marshall Clay CFP®, JD, is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.


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