2022 was a tough year for the financial markets with everything from stocks to bonds to cryptocurrencies falling significantly. The Nasdaq was down about 34%, the S+P fell almost 18% and most shockingly 20 year treasuries fell over 30% in 2022. Some of the darlings of 2021 fell by 60% or more, such as Tesla down about 65% and Carvana down about 98% over the course of the year. Thankfully, our portfolios were sheltered from the worst of the pain by having a more value tilt throughout the year and keeping our fixed income maturities shorter.
The fall was mostly predicated by the Fed raising interest rates at an extremely fast pace to levels we haven’t seen in years. There are two pieces of good news in their actions. Firstly, they say they are likely nearing the end of the rate hikes, with most of them having already taken place. The second piece of good news is that fixed income is actually paying interest rates we haven’t seen in about 20 years. These two put together mean that we will have more protection for our portfolios from more interest coming in, and also that stocks have hopefully priced in all the rate hikes and will have an opportunity to grow from last October’s lows.
Our plan for 2023 is to lengthen the maturities of our bonds to lock in the higher rates that we can currently find. If the Fed is correct and rates fall later this year or next year, then that move should pay off for many years to come. In terms of stocks, PE ratios still look attractive at the current levels. If the market climbs to where those ratios aren’t as good of a deal, then we will move money away from stocks into those higher rate bonds. If the market falls further, then we are very excited to buy stocks at these low levels.
As always, please don’t hesitate to reach out if you have any questions or concerns.
Happy New Year to all of you!