2022 has been a crazy year for everyone. There is the Russia-Ukraine war causing supply chain problems, the US having to raise interest rates to the highest point in the last 100 years to fight the out of control inflation, then there is also the coronavirus that is never ending. With so many problems happening, investors are being overwhelmed on what things they should do.
One thing that would come back, that has been ignored for the last 2 years, would be that of value or simply put it investing in value companies.
Investors would start to turn their eyes back to investing with value, something that they may have forgotten over the past 2 years, as they were chasing the trends.
The question would be “Why would investing with value come back into play?”
There are a few reasons why it would come back as investors seek for them among other piles of news and words. Below is just one of the reasons.
Over the past 2 years, there was quantitative easing
Because the central banks around the world have been printing vast amounts of money to help the different economies recover from the pandemic that hit everyone, there was a massive wave of injection of free money into the economy. The Federal Reserve in the US, printed trillions of dollars to help the economy. With people not knowing what to do with the free money that they have received, they decided to put it into the markets. As a result of this move, it snowballed and eventually caused the markets and the economy to rebound in a matter of 6 months or less. This inturn went on to drive the different stocks to sky high prices and not forgetting to mention the valuations of different companies.
Then at the beginning of this year, the Federal Reserve in the US decided to suck back the money that it has printed and given to the economy over the past 2 years, by raising the interest rate and slashing its balance sheet. This then triggered a wave of repercussions into the market, causing it to dive. Companies that have high debt are finding it harder to repay their debt. Companies that want to borrow also find it hard to do so. Then it led to companies reporting earnings miss, which sent the prices crashing down, some of which are almost back to pre-pandemic levels.
One thing that can be learnt here is that if each investor is as patient as the legendary investors like Warren Buffett and Charlie Munger who have seen the worst of the crashes like the great depression in the US, the investor should know that during the run up after the covid crash, Warren Buffett and Charlie Munger hardly added into any of their holdings. They kept sitting on their ever growing cash pile of billions of dollars. Then when the markets started to come crashing down this year, the duo deployed their cash pile into different sectors, from technology to energy to financial. He does this when there is mass panic in the markets where there is news about recession everywhere. Warren Buffett said that he did not see anything of value when the market was going up back in 2021.
In essence, as Warren Buffett says “Be greedy while others are fearful and be fearful when others are greedy!” If an investor abides by this rule and only enters when the holdings come to valuation, ignoring all other noise or news out there, that is where investing in value companies will shine.
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