So far this is a “normal” year for stocks, even though it doesn’t feel that way
The chart below helps us put this year’s nasty stock market in perspective. The green dots mark the gain or loss for the full year, while the gray bars indicate the largest loss during that year.
The average loss during a year is 14%, (about where we are right now) and those losses (drawdowns) happen every year. Meanwhile, the full year results show 9 negative years out of the last 43.
While the current correction is normal, it never feels normal. Never. And each specific instance contains specific worries that are in full focus at the time. Only in hindsight do these look like easy buying opportunities. But in real time, they don’t look like an opportunity and are anything but easy.
Our repeated warnings in the last couple of years that our returns would inevitably fall below the experience of the 2017-2021 period have finally come to pass. But admittedly in a nastier way than we imagined. But that’s usually the way it works. The pleasant surprises of the last 5 years have given way to the opposite in 2022.
Still, the businesses we own are not failing or even suffering losses—profits continue to grow. That improving earning power will be recognized by investors over time in the form of higher stock prices. We just don’t know when the current environment will improve or precisely when the losses of 2022 will be recovered.
Daniel A. Ogden