Should you invest in the stock market in 2023? The big question seems to be a polarizing opinion like no other because the stock market crash in 2022 wiped the floor with anyone invested in growth stocks or early-stage companies. And seeing as you’re watching this on YouTube, the demographics indicate that a lot of you probably are invested in stocks that also have lost over 50% in the last 12 months. And naturally, the question in your mind is have we hit bottom?
Is now the time to invest to get crazy returns? Is this one of those once-in-a-lifetime, once-in-a-generation opportunities? Has the crash already happened? Are we past it? Inflation is coming down. The Fed is going to pivot, the job market is strong, blah, blah, blah. Or are you catching a falling knife?
Just getting started because stocks are going to fall a heck of a lot more because, you know, tech stocks are still massively overvalued. Everything is still one giant bubble. The Buffett Indicator says that the market is still massively inflated. Tesla is going all the way down to $30. You know the drill.
Money is flowing in. Advertisers are tripping over each other to promote their financial products. Everyone wants a piece of the pie. That was what we saw in 2020 and in 2021. And now. over a year into the downturn, things are looking very different. For many investors, this is the first proper downturn that they have ever seen because so many investors first started investing. Just in the last two or three years, we’ve had the rise of free investing apps, which made it a lot more affordable, and a lot easier for people. Previously, it was a bit of a mess and now we’ve had STEMI checks.
Inflation data is continuing to drop down to six and one-half percent in the latest report a few days ago. Oil has tracked back towards the $80 mark and stayed there after peaking last summer. And Europe has stuck the middle finger to Russia in quickly figuring out alternative sources for natural gas, which has come down in price. Significantly, food prices have also just recently started to come down. Inflation on rent and house prices is falling, Real terms. Inflation on new properties coming up, which will eventually be followed through by the data and the CPI report.
All of these are leading indicators for inflation rates in the coming months and coming quarters, which is all highly encouraging. At the same time, China has done a surprise U-turn changing its zero COVID policy into an everyone COVID policy, which should mean an end to random city-wide lockdowns which affect production for the whole world and the Chinese economy. Employment data remains very strong, so investors are naturally thinking that the outlook is perhaps a little rosier than it maybe looked three or four months ago. But this market downturn is just the same as every other market downturn because, in every single market downturn, all the dweebs climb out of their mom’s basements to tell you that.
Everything is going to get a whole lot worse, you are going to need to capitulate. You better go and dig that bunker in your garden. Maybe just burn all your money Before you watch it burn. Anyway, you know the Michael Berry sword of. You cry wolf every single year after year after year after year after year and after a year. Does eventually drop, the problem is that you kind of don’t have anything else to say if you’re one of these people. So in the true spirit of a broken clock or a broken record.
The only thing that they can say it is going to get a whole lot worse. And if it does, then they will be proven to be extra, extra right. And earn extra kudos points. But if it doesn’t, then.
Well, the Market is just Irrational. You just wait is going to happen soon, Don’t you worry. The fact is last year we already saw a pretty substantial market drop not many people seem to be talking about this point in these specific terms. But from January the fourth to October 11th, 2022, the stock market fell 27.5% from the intraday high to the intraday low. That is a bigger drop than in the crash following the last big inflation spike in the 1980s, which was way bigger than the one we just had back then. The market only fell 26% from the very top to the very bottom. And that drop lasted 619 days compared to just 282 days this time around. Could it fall more this year? Sure, why not? we don’t know.
But just so you know, the inflation situation in the late seventies, going into the early eighties was way, way worse. And the rates that went up at that point went up way, way worse. And the stock market fell less than it already did last year. Granted, we haven’t seen a huge crash like the dotcom crash in 2000 or the financial impact in 2008. But it’s also important to remember that those were somewhat abnormal crashes. They were the number one and the number two biggest stock market crashes in modern history since the Second World War. And excluding the two flash crashes in 1987 and 2020, when the market only dipped for a short period. Other than those two substantial recent crashes, only two of the seven major drops fell by more than 30%. So statistically, it is unusual to fall by much more than we have already seen last year.
Now, it could happen and given where we already are, the likelihood is not negligible. It is not something to be discounted. But at the risk of annoying people with a conditional probability impasse that we are all too aware of, it is generally not common.