Published on: 01/17/2023
In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo look back on investing in 2022, highlighting how stocks still make sense in the long run.
Welcome to another edition of Chart Talk. I’m Tony Ogorek. I’m here with Portfolio Manager, Jeff Viksjo. And Jeff, we’re going to take a perspective on 2022, which you know, many people found to be, how should we euphemistically say, an unprofitable year. But there are some positives to take from it. So, let’s take a look at our first chart. What do you say on this?
Yea this shows the annual returns dating back to the 70’s. And Tony, if you look at it, there’s a lot of green. So, stocks typically go up. It’s rare to have a down calendar year in the stock market, like we had just this past year. What’s more important too, is it’s even rarer Tony, to have 2 years down in a row. If you look, the last time that happened was 20-years ago after the Dot com crash. And before that, it was 20-years before that, in the 70’s. So, very rare that we would have another down year next year.
Yea. And you know Jeff, if people didn’t know what you were investing in at all and you showed them this chart, and you said you would be investing for the next 10-years, next 10-years, next 20-years. I don’t care what it is, would you prefer to be investing in the green stuff or the red stuff. Invariably, they’re going to say the green stuff and those are stocks.
Now, let’s take a look at a scatter plot chart. This is sort of interesting also because it looks at the horizontal axis, we look at stocks, and on the vertical axis we see bonds. And you see there is an orange dot there, in the bottom left quadrant, and you know again that’s where we were in 2022. How does that compare, you know again, historically? And this chart goes back to 1926.
Tony as we know, stocks fell 19% or so last year, but that’s not what made it so tough. What made it a really tough year was that bonds fell also. They were down about 12%. And this chart, that bottom left quadrant, that’s showing years when both stocks and bonds were down. So Tony, there’s a lot of dots on this page and there’s only four, or so, in that bottom left quadrant. That shows you what a rare year last year was.
Yea and Jeff, that’s 96-years’ worth of data. And again, you want to live in that northeast quadrant. Which is where you see most of the dots. And that’s really where stocks and bonds have been historically. So, we may not have a big down year next year and we see this, and we say this as sort of a rarity.
We have one more chart and the question is then ‘well are we off to the races?’ And this one looks at relative valuations. And what can you tell us when we see this?
Yea this chart just shows how expensive stocks are at a price to earnings basis. They’re now, after the sell off last year, they are about in line with their 25-year average, about 16x earnings. They are not necessarily cheap, like I said that’s just about in line with the average, but they are not wildly expensive as they were at the start of 2022, which was about 22x.
Right. So, the good news is stocks, for the long run, really work for investors. And you know, last year, took a lot of the air out of stock valuations. And they’re about, at average levels. They’re not necessarily cheap. But again, I think we’re in a better position in 2023 than we were at the beginning of 2022.
So, thank you Jeff, and thank you for watching this edition of Chart Talk.