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Volume 11, Edition 39 | December 26 – December 30, 2022

Investor Resolutions for 2023

Doug Walters, CFA
It is resolution time, and we have some suggestions to help you exit 2023 as a more savvy investor!

Contributed by Doug Walters, Max Berkovich, David Lemire, Eh Ka Paw

It is the time of year for resolutions! Many of you will have your personal goals for the year. I have a slew of them, including learning piano and coding in Python. Perhaps the final edition of Insights next year will include a video recital! But the coming New Year also allows investors to hit the reset button and begin anew. We have some suggestions!

Behavioral finance provides a great reservoir of potential resolutions for investors. We list some of our favorites along with a bonus resolution.

Sit back and do nothing:

Evolution trained our brains to react quickly and decisively to little information. This instinct served us well in our primitive state but drives unnecessary action in investing today. Wealth creation is a long-term endeavor of patience, where sometimes, the best action is no action. In 2023, avoid the primitive desire to move money in and out of the market for the sake of doing “something.” Be patient and let the market work for you.

Give your emotions the year off:

Conjur your inner Spock and take emotion out of your investment decision-making. That is hard when today’s financial media is designed to stir up emotions. There’s a great study that involved coin-flipping and brain damage. It found that those with no ability to feel emotion made much better investment decisions over time. The worse the emotional investors did, the worse their decision-making1.

Eat some humble pie:

93% of US drivers believe they are above-average drivers2. That is a lot of people overestimating their abilities. We are inherently overconfident! In investing, that translates to unjustified market timing and generally over-trading. The US stock market is priced in real-time based on the cumulative knowledge of hundreds of millions of investors. To believe that you can make money stock picking or timing moves in and out of the market implies you are more intelligent than the cumulative knowledge of all 150 million US investors. Now that is some confidence! Stop trading and pick up another hobby.

Separate your hobbies from investments:

The past few years have seen too many people confuse their collecting and speculating hobbies with investing. There will always be a “next big thing.” In recent years it was cryptocurrency, meme stocks, and NFT art. These are hobbies, not investments (at least today). Hobbies are for entertainment. Investments are a means of long-term wealth creation. Make sure those two parts of your balance sheet stay very separate. You should never be spending money on hobbies that is earmarked for retirement.

If you don’t need these resolutions, great! If you do, pick one or pick them all, and you will exit 2023 as a more savvy investor.

Thank you to all of our loyal readers. We look forward to connecting in the new year!

1. Shiv et al. (2005), 2. Svenson (1981)
93%

Percent of US drivers that think they are above average

Overconfidence is just one of many primitive behaviors that are ingrained in our brains and can impact sound investment decision-making. 2023 is a great year to conquer these biases!

Headline of the Week

700 BILLION!!

No, it’s not an updated bail amount for SBF but rather the potential vaporization of Tesla’s stock this year. Normally, Elon would be elated to see Tesla in the headlines, given his Twitter-induced migraines. While the issues in the Twitter-verse are more self-inflicted, the Tesla issues could be more meaningful and are at least more fundamentally driven. Production, demand, pricing, competition, and CEO focus issues all seem to be plaguing this previous EV darling. However, to adapt a favorite expression, tales of Tesla’s demise could be greatly exaggerated. The growth opportunities in Tesla’s markets remain strong, but we prefer to access them through our factor-based ETFs.

The Week Ahead

Another holiday shortened week, but this one will have plenty of noise. The biggest noisemaker will be the Jobs report on Friday.

The Upside Down

When the non-farm Payroll report comes out on Friday, all eyes will be looking for… well… in normal times, job growth. But with the Federal Reserve aggressively trying to slow the economy to curb inflation, we guess they are looking for fewer people working.

  • Going into the weekend, the consensus is calling for 57,000 new jobs created in December. That is a tremendous drop from the 263,000 created in November.
  • Average jobs created in 2022 were running at 408,000 per month, skewed heavily by 714,000 in February and 536,000 in July.
  • Average weekly hours are expected to tick up, yet yearly change in hourly wages is forecast to expand by 4.9%, a drop from November’s report, where it was slightly above 5%.
  • We expect the weather and holidays to be used as an excuse if the number is weak.

Alphabet Soup

JOLTS, ADP, PMIs, ISMs, and CPIs will be out in various regions to start the new year.

  • The Institute of Supply Management (ISM) issues its Purchasing Managers’ Index (PMI) in the US on Wednesday for manufacturing and the service one on Friday.
  • PMI on the service side is expected to show a small decline, while the manufacturing report is expected to expand.
  • The job openings and labor turnover survey (JOLTS) will add another piece to the employment puzzle, as will the ADP Employment report and the Challenger Gray Job cuts report.
  • The Consumer Price Index (CPI) reads are coming from overseas. Inflation slowing out there will be a good sign that inflation has peaked at home as well.

Minute by Minute

The Federal Open Market Committee (FOMC), the rate-setting arm of the Federal Reserve, will release minutes of its last meeting mid-week.

  • While the meeting is old news, any nuggets in the notes that may hint at what the February meeting will yield will be newsworthy.
  • Over the course of 2022, the central bank took the interest rate it sets from near zero to 4.5%.

Bring on 2023! So Long 2022!

Have a happy and healthy New Year!

  • Financial Markets are closed on Monday in observance.

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