3 investor lessons from 2023

Every day is a school day as they say.

1. Geopolitics – signal versus noise

This was another year scarred by tragedy in many parts of the world. War and atrocity, hand in hand as usual, stalked the land. As an investment team in a large financial institution, we are privileged with the information access we get at such times of strife. Decision makers, specialists and other experts are quickly gathered so that we can try and assess the likely effect on investments. The temptation following these briefings is to parade the knowledge as one’s own. A judicious sprinkling of some geostrategic jargon and some borrowed anecdotes and you are off to the races. Bad dinner party/pub chat begins to infect the workplace.

There are many fewer experts than would claim the title. Sifting the wheat from the chaff can be exhausting. One easy tell, as with all expertise, is the stridency. As Yeats pointed out ‘the worst are full of passionate intensity, the best lack all conviction[1]’.

One of the many challenges as an investor is understanding how to prioritise your precious time. The guiding principle here is to focus your analytical skills where there is established, proven bang for buck – If I spend my time trying to derive an opinion on some area of the world’s capital markets – from equity sectors to geopolitics – will it help me drive higher (risk-adjusted) returns? If the answer to that question is ‘no’, then you need to move on.

1. Consensus rodeo

This was also another year that saw the ‘consensus view’ on the world jump around like a bucking bronco. The year opened with a broadside of recession forecasts. With (some) history and theory on their side, many were sure that a downturn was in the post. Then came the spectacular implosion of a few banks on both sides of the Atlantic, which only reaffirmed the recession calls.

As the US and global economy continued to apparently defy gravity, the recession calls lost steam. And as we close out the year, the soft landing (no recession) is priced in across most assets. In other words, no recession either this year or next is the embedded expectation in prices.

For investors that loyally clung to the original consensus for their investment direction, this was another tough year. We managed to balance some tactical positions consistent with that consensus view, with a bit more investment iconoclasm during the year. The balance served us well. 

1. The problem with History (again)

As humans, it’s only natural that we squirm uncomfortably before the chaos of incoming data, news flow and corresponding asset price moves. To restore some soothing order, all are jammed into the fashionable model or theory of the moment.

The price moves of various stocks, bonds and commodities are then neatly stacked according to their accompanying perceived risks and their necessarily commensurate returns. In the logical, ordered world we all quietly crave, why would you take a risk if you didn’t expect a return?

All these models and theories are hewn from the study of history and attempts to find rules and patterns therein. Like much else in our society, tribes dominate. There is simply too much grey area and uncertainty for us ever to truly know whether one or other (or any) theory of understanding the world of economics and markets is correct.

With regards to the economy, there has been too much change over the last 50 years to make cast iron and precise comparison easy. Further back than that, we are gazing through ever thicker mists of poor and incomplete data. It is the same for investment markets to a degree.

There is certainly a lot of data, but for those looking for cycle comparisons there simply haven’t been enough of them in the post-war period to really infer too much reliably. High-frequency traders have a slightly juicier data set in which to pattern spot, but the rest of us are left trying to mix patterns in the data with what might make intuitive sense.

This led many astray in 2023. The nuanced and incomplete messages from history were hardened into ‘facts’ in the bid for precious marketing oxygen. The potential for a recession was turned into a near certainty by overconfident communicators. So far, those predictions have been frustrated by the various ways that this time is indeed different from past episodes of tightening interest rates.

Final thoughts

The lesson is here is to remember that every time is different. In a world that has been reduced to numbers, we must remember to reinsert the nuance that comes with more detailed study of the context behind those numbers.

The underlying message remains unchallenged: Diversified investing over the long term remains a robust tool for wealth preservation and growth.

Find out about our ' Ready-made investments' via our Smart Investor platform. A selection of five Barclays funds that each aims to increase the value of your investments over time, using a broad mix of asset classes from across the globe.

Or

Learn about Barclays Wealth Management, the affluent and high net worth service provider for Barclays UK.

[1] W.B Yeats, ‘The Second Coming’, 1919