To The Moon

Entering into 2023, US Fed rates were standing at 4.5%, $SPDR S&P 500 ETF Trust(SPY)$ at 3800s, with major players predicting that we were all heading into recession and an economic slump. End 2023, US Fed rates are now at 5+%, $SPDR S&P 500 ETF Trust(SPY)$ up about 20%, with recession not in sight and the market still performing at its highest levels. I myself is also guilty of such predictions, slowly selling down as interest rates rose, and losing out on about 10% gains that I could have had should I have held on to the stocks that I sold. Here's some lessons that I learned from this year:

1. Take predictions with a pinch of salt, no matter how reliable you think the source is. No one is God; no one can truly predict the future. Those that tell you they can are hoaxes, and those that predicted the market correctly are probably just lucky. Do your own due deligence, and trade accordingly. That way, one can learn the most from their wins or mistakes, and incorporate them into their future trades.

2. Market is unpredictable. Very related to point 1, but different in focus. The study of economics tell us very much about how the market should behave rationally. However, ever since the COVID-19 pandemic, the market has not been behaving rationally, with economic theories being flipped upside down. Stocks have been shooting through the roof admist the height of the pandemic. Or take the interest rate rises since 2022 for example. A interest rate rises should theoretically result in a tightening of the economy, with a corrosponding fall in growth and thus a resultant increase in negative market sentiment - all leading to a fall in stock prices. But look what happened as of Dec 2023: fall in inflation rates signalled a possible rate cut and thus an increase in POSITIVE market sentiment - stock prices went up, even though growth is still forecasted to remain lower in 2024. 

How then would I invest?

1. Invest in companies with large moats in their respective industries, as well as large economic moats to withstand the change in macroeconomic environment. This would entail companies that are differentiated (in a good way!) from the market, have a loyal following, and have good RND. 

2. Diversifying sectorially could help to lessen the impact of changing macro environments. Some people advocate diversifying geographically, but in an increasingly globalised world, I myself don't find this really useful, apart from being able to avoid losing everything from purely investing in war torn countries. However, if you're sticking to the US markets, you're pretty much ok. A little diversification into emerging markets wouldn't hurt too. 

3. Maintain a position. Can't stress this enough. Lost out on 10% gains this year, but if I sold everything for bonds (or T-bills as us Singaporeans love!) I'd have lost 20+%.

As usual, my own musings, dyodd, not investment advise, and all that. Trade safe and Happy New Year!

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