The new year begins with the market entering into a correction. At the time of writing, the leading stock market indices are down almost 10% since the turn of the year. This is after the markets have risen almost continuously since March 2020 and the corona outbreak. What is highlighted as the main reasons why the market is now falling is the aggravated situation around Ukraine and the danger of war, combined with the fact that inflation has risen and the most important central banks are withdrawing their stimulus monetary policy. As mentioned, the US stock market is down almost 10%, and has fallen to the level we were at around June last year. On a global basis, the stock market is down about 7% so far this year, largely due to the fact that Asia and Norway have held up somewhat better so far. Asian stock markets have fallen for almost a year, while the Norwegian stock market has probably been helped by both higher oil prices and a solid economy. We see the biggest effects around sectors that had begun correction well before the rest of the market now follows suit. Stocks that we have previously referred to as bubble-like, such as "disruptive" technology and "green" stocks, have corrected +/- 50% from the top. Other risk investments such as cryptocurrency have corrected at least as much.
It is often the case that when the market has risen for a long time and the recent market downturn begins to become a distant memory, many investors lose some of the perspective on what is high and low risk. Or rather, higher risk is first and foremost associated with how fast it can rise. It is only when the market corrects or adjusts that it becomes clearer what the consequences are of taking higher risk. While technology indices have fallen 15% since the new year, value-oriented indices have not fallen more than 0-2 percent.
What we believe is important to focus on when corrections occur are;
We know nothing about how long the correction will last
We know nothing about how far the market can fall
BUT, based on history, corrections tend to be in the order of 5-50%. The stock markets bottomed yesterday at about -10%. In other words, we know what discount we have, and that's the only thing we can relate to.
If one wants to wait until the "uncertainty" is over, then the stock market has probably already risen to where it was before the correction.
It is very human to want to try to time the market, but this exercise has historically proved to be extremely difficult. One should not only hit the time of sale, but also the time of subsequent purchase. Making both of these decisions has proven to be more about luck than skill. We thus do not think it is a good idea to base the management result on luck/ bad luck.
Attached is a link to a feature on NRK evening news about the market correction we have seen in recent days. We will go through the topic in more detail at our next webinar on the 10th of February. Sign up here.
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Even Krohn-Pettersen