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1 Crucial Investing Lesson I Learned In 2022

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Long-term investing has consistently been shown to be a reliable strategy for building wealth over time. While it may be tempting to try and time the market by jumping in and out of investments in an attempt to maximize profits, this approach is often futile and can even be detrimental to your financial success. The S&P 500 index, which tracks the performance of 500 of the largest publicly traded companies in the United States, has historically returned an average of around 10% per year. Rather than trying to predict short-term market fluctuations, it is generally more effective to adopt a long-term perspective and focus on building a diverse portfolio of quality investments that align with your financial goals.

The market action in 2022 gave me an unpleasant reminder of this universal truth. Let me tell you all about this awkward lesson.

Life is full of surprises

There’s always another shoe about to drop. Or maybe it’s an unexpected upswing across the board. You just never know what’s next. It is genuinely impossible to predict the unpredictable, and my K-Mart crystal ball was defective out of the box.

In hindsight, many of the shocking swings in 2022 make perfect sense. You can trace them back to original causes years ago, and many of them (but not all) converge on the coronavirus crisis. Government responses to the COVID-19 pandemic were imperfect around the world, sowing the seeds for factory closures, rising energy prices, shifting consumer spending patterns, and labor shortages.

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But those long-term effects of lockdowns, stimulus payments, travel restrictions, and vaccine distribution strategies were not so obvious in real time. Likewise, I’m sure future historians will scratch their heads over how we’re handling the inflation surge, worker shortage, and currency exchange challenges right now. Looking back from 2028 or 2033, I’m sure the correct course of action will be obvious, in large, blinking neon lights.

We’re just too close to the action to see it yet.

What happened in 2022?

This shouldn’t have been news to me given I often repeat the universal truth that market timing doesn’t work. The only way to know for sure where the market as a whole or any particular stock will move in the next day, week, or month is to have absolutely accurate insider information before anyone else. It’s illegal to take advantage of that secret info and make guaranteed money in the stock market.

Perfect investing should be a completely emotionless exercise in analysis and money management. However, we’re all human. So in the middle of summer, when the inflation crisis appeared to have reached its final peak, I decided to take resolute action. If inflation-based pressures are going away soon, growth stocks that had taken drastic haircuts in the first half of 2022 were surely destined for immediate rebounds.

I like to keep some money on the sidelines for the next no-brainer investment opportunity. This summer, I saw such an opportunity. Most of that cash suddenly found its way into high-octane growth stocks that had seen dramatically lower share prices over the previous six or seven months.

For example:

  • Digital ad campaign management specialist The Trade Desk (TTD -2.05%) had endured a 50% price drop so far in 2022 when I doubled down on that stock. The company is firmly profitable and growing fast, but perhaps a bit slower than analysts would like. The long-term opportunity in online ad sales is tremendous and The Trade Desk was on fire sale for all the wrong reasons.
  • I picked up more Roku (ROKU -2.19%) shares on several occasions over the summer. The stock hovered around a 70% year-to-date drop in this period, almost exclusively because investors had become fearful of growth stocks with lofty valuations. Once again, I saw nothing but a wide-open buying window for a media-streaming stock with excellent long-term growth prospects.
  • Freelance services reseller Fiverr International (FVRR -0.55%) spent that summer a few percentage points below Roku’s stock chart, waiting for investors to get over the idea that the company’s golden days had come and gone with the lockdowns of the early coronavirus crisis. Now that vaccines are widely available and life is going back to some semblance of normal operations, many market makers expected freelancing and contractor work to go away, too. I disagreed because Fiverr and friends are making the gig economy a perfectly normal alternative to a traditional career. So I bought more Fiverr stock in July at a 74% discount from last year’s New Year holiday.

The results of that binge have been mixed so far. As it turned out, the inflation crisis wasn’t really over yet, and the stock market as a whole was under continued pressure in the fall. The Trade Desk has traded in tandem with the S&P 500, falling 3% in roughly six months. Fiverr has clung closer to the more volatile Nasdaq Composite index, with price drops in the low double-digit area.

And then there’s Roku. I thought the stock was way undervalued last spring, only to take another 20% price cut after an underwhelming earnings report in July. Another round of gloomy guidance brought more price drops in November. By the end of the year, Roku’s shares had lost 82% of their value.

Lesson relearned: Market timing isn’t investing

I saw many signs pointing to a quick market recovery, which surely would send these stocks much higher in a hurry. The second half of 2022 didn’t play out as I’d expected. Many of the stock purchases I made in June and July have been wildly unprofitable so far, and I would have been much better off saving at least some of that dry powder for the even lower prices we see today.

Now, I didn’t do everything wrong last summer. I didn’t pour my cash into the latest, greatest flash-in-the-pan or any blink-and-you-missed-it penny stocks. We are still talking about great companies with promising futures, and they’ll be ready to thrive when this economic crisis is over — even if it takes several years.

That’s the real trick to successful investing. To quote master investor Warren Buffett, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” It’s all about the magic of compound returns on your investment over many years.

So I thought I was grabbing shares of wonderful companies at wonderful prices, but I’ll gladly settle for a merely fair price anytime. 2022 reminded me that market timing is just gambling under a different name. Long-term investing is still a proven money-making strategy. Come back in five or 10 years, and I’m sure the buys I made last summer will have made serious money by then.

Anders Bylund has positions in Fiverr International, Roku, and Trade Desk. The Motley Fool has positions in and recommends Fiverr International, Roku, and Trade Desk. The Motley Fool has a disclosure policy.

 

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Amazon Adds $2.75 Billion To Anthropic Investment, Sora Goes To Hollywood – Forbes

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Amazon invests $2.75 billion in Anthropic. This brings Amazon’s investment to $4 billion, as it follows its previous investment of $1.25 billion, which gave the company the option to invest the additional funds. This comes as Anthropic’s new Claude-3 chatbot outperforms ChatGPT- 4 in recent tests. Amazon has unique insight into Anthropic’s performance as it is one of the suite of AI models offered by AWS, which include most of Claude’s competitors.

Sora Goes To Hollywood. Everyone is reacting to a Bloomberg report that OpenAI will soon be meeting with studios and other Hollywood stakeholders to demonstrate the capabilities of the text-to-video generator and explore partnerships. OpenAI says unnamed “A list” directors are already using it.

Based in Toronto, shy kids are a multimedia production company who utilized Sora for the above short film about a man “who is literally filled with hot air.” His head, as you can see, is a yellow balloon. “We now have the ability to expand on stories we once thought impossible,” shares the trio made up of Walter Woodman, Sidney Leeder and Patrick Cederberg. Walter, who directed Air Head, said as great as Sora is at generating things that appear real, what excites us is its ability to make things that are totally surreal.

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Neuralink Shows Paralyzed Patient Playing Chess on a PC. Elon Musk’s brain-computer interface company shared a video of its first human patient, Noland Arbaugh, playing chess and Civilization VI using their brain implant. Arbaugh, who is paralyzed below the shoulders, described the experience as “just stare somewhere on the screen” to move the cursor. While some experts see this as a promising step, others emphasize that it’s still early days and the technology has limitations. Arbaugh acknowledged that there’s still work to be done, but the implant has already changed his life.

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Illuvium Labs Raises an additional $12 million for NFT Gaming Universe. Following an extensive three-and-a-half-year development journey and $60 million in funding, Illuvium Labs is on the cusp of unveiling its interoperable gaming universe. It will feature three interconnected titles designed to utilize the same NFTs seamlessly across all games, promising a first-of-its-kind experience. The influx of $12 million in Series A funding from esteemed firms like King River Capital, Arrington and Animoca will be allocated to developing new gaming titles within the Illuvium ecosystem.

Databricks’ DBRX claims the crown as best open-source LLM. It’s a list that includes Meta’s Llama 2 and Mistral’s Mixtral. Leading companies like OpenAI, Google, and Anthropic sell, or rent, their proprietary private models to enterprises and subscribers. DBRX was produced for just $10 million, orders of magnitude less than its competitors. On Monday, Wired reported that the company showed data proving its AI model’s reading comprehension, answers to general knowledge questions, and coding is superior to other open-source models that can be downloaded from Hugging Face and modified by users.

Shiba-Inu Metaverse leader steps down amid dispute over IP. Marcie Jastrow, the well-regarded Hollywood executive who led Technicolor’s XR efforts, has left the company. This led the company’s legions, known as the Shib Army, to speculate about malfeasance, which is easy to do, because Jastrow is the only person involved who is not anonymous, including Ship’s charismatic leader Shytoshi Kusama.

This live football experience was built by Immersiv.io to showcase how AR can transform the live sports broadcast and fan experience using the Apple Vision Pro. Immersiv.io worked with the Bundesliga (the German Football League) on the production. In a post on X, the company said. “This is a 3D reproduction of the live game integrating TRACAB Gen 6 live skeletal data of all players and the ball, complemented with real-time insights, offering the ultimate live tactical perspective of the game.”

SXSW 2024: XR That Makes You Go Wow. The XR competition was won by an AI experience, The Golden Key. This is the second year in a row that an XR experience did not take the immersive festival’s grand prize.

The second annual AI Film Festival is coming to Los Angeles on May 1, and New York May 9. Seats are limited, request to attend at http://aiff.com

This column, once called “This Week in XR,” is also a podcast hosted by author Charlie Fink, and Ted Schilowitz, former studio executive and co-founder of Red Camera, and Rony Abovitz, founder of Magic Leap. This week our guest is Liz Hyman, CEO of the XR Association. We can be found on Spotify, iTunes, and YouTube.

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Where Will Virtual Reality Take Us? (Jaron Lanier/New Yorker)

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FP Answers: What is a 'behavioural edge' in investing and how does it affect returns? – Financial Post

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Temperament is the unsung hero of investing success

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By Julie Cazzin with Felix Narhi

Q: What is a “behavioural edge” in investing? How does it potentially enhance returns? How can an investor develop it? — Giovanni

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FP Answers: Giovanni, the term behavioural edge is just another way of saying “temperament,” which refers to the habitual way a person behaves in each situation. For example, one person may be easygoing and relaxed while another is more likely to be impatient and assertive.

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Temperament is the unsung hero of investing success. Gaining insight about our innate emotional temperament and learning how to work with it gives investors an edge.

The common misconception is that you need a high level of intelligence to be a successful investor. No doubt, that can be helpful, but based on many years in the industry, I’ve seen it is not always the most important differentiator.

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Once someone has at least an average level of intelligence, it is temperament that often provides the investing edge in leading to better returns over the long term. “Investing is not a business where the guy with the 160 IQ beats the guy with the 130 IQ,” famed investor Warren Buffett has pointed out.

Having the right temperament can potentially enhance investment returns in several ways. An investor who is very reactive to external events is likely to fare poorly over the long term because, quite simply, the world is full of uncertainty and always will be. Markets are highly reactive, abetted by algorithmic trading and automatic rebalancing by exchange-traded funds. Individual investors should not be.

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Research shows that investors who trade frequently or try to time the market underperform. On the other hand, those investors who can remain calm and patient throughout market cycles do better because markets historically trend upwards. Hands down, being calm, cool and collected is the right temperament for an investor to have.

The concept of “homo economicus” — or economic man — describes a hypothetical person who consistently makes rational decisions. In real life, our decisions are coloured by our formative experiences, moods, external circumstances, what we ate for lunch and a host of other factors. These influences drive our behaviours, but they often operate below conscious awareness (even artificial-intelligence apps “hallucinate”).

Given that behaviour is some combination of cognitive and emotional inputs, an investor can create an edge by developing a disciplined investment process that overrides temperament, especially during highly volatile periods.

The term “active patience” means being clear about your investment principles and what you are looking for, and practicing active patience until the right opportunity arises.

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In contrast, regular patience is making an investment decision and sticking with it no matter what, even if it was the wrong decision. The latter approach is unlikely to bring financial success, which is the major goal of investing.

Active patience is what Buffett would call the “fat pitch,” which occurs when the market (occasionally) presents a very attractive opportunity. It is easy to spot a great opportunity and take full advantage of it when an investor has clear principles on what they are looking for.

Can we change our temperament? Recent studies show that personality traits and moods are subject to change, sometimes within the hour, so temperament may not be as fixed as we’ve been led to believe.

Becoming a better investor starts with self-knowledge — and lots of practice. The behavioural traits associated with good investment outcomes are patience, discipline, emotional control and risk awareness. It so happens, these qualities lead to good life outcomes, too. A calm temperament is the bedrock of making sound investment decisions.

Every investor must determine for themselves how to achieve greater equanimity and there is no shortage of books, videos and TikTok tutorials on that evergreen topic. I would also add the importance of staying humble.

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In investing, as in life, the learning never stops. Staying open to new information and having the courage to challenge our own and others’ beliefs and habitual behaviours are the keys to future success.

Felix Narhi is chief investment officer and portfolio manager at PenderFund Capital Management Ltd.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

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Lenders Rally After India’s Central Bank Eases Investment Curbs – BNN Bloomberg

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(Bloomberg) — Indian banks and shadow lenders rose Thursday after the country’s central bank eased capital requirements for a unique type of investment, a move that may free up more funds for loans.

The gains came after the Reserve Bank of India issued Wednesday modified rules on lenders’ required provisions for exposure to alternative investment funds, or AIFs, that invest in the lenders’ borrowers. Under the new policy, a lender needs to set aside capital only for the amount the AIF invested in the debtor company, and not the entire investment of the lender in the AIF.

Shares of Piramal Enterprises Ltd., which reported among the biggest provisions for such investments, closed 1% higher after rising as much as 6% during the day. A gauge of financial services firms climbed 1%, the most since March 1.

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Lenders led the rally in the broader market, with the NSE Nifty 50 Index registering its best day since beginning of the month.

The RBI’s softening stance came after industry players raised concerns over clarity and uniformity after it announced in December restrictions on lenders’ exposure to AIFs that hold stakes in their borrowers. The latest move will likely help firms including Piramal, HDFC Bank Ltd. and IIFL Finance Ltd. reverse some of their relevant provisions made previously, according to analysts at Citigroup Inc. and Jefferies Financial Group Inc.

Read more: India’s Crackdown on Financial Risks Puts Industry on Watch

“Select private banks and NBFCs like Piramal had provided for their entire AIF exposure during 3Q and could see some write-backs in 4Q if they decide to reverse the excess provision,” Jefferies analyst Bhaskar Basu wrote in a note.

Regulators introduced a flurry of new rules last year to prevent a buildup of financial stress at a time when India’s economy remained resilient in the face of rising interest rates, slowing global growth and unabated geopolitical tensions.

©2024 Bloomberg L.P.

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