Late last year, I made three stock market predictions for 2022. I didn’t try to forecast where the major indexes would end up. Instead, I made more generalised calls.
Today, I’m going to revisit those predictions. Was I right? Or did I get things wrong?
A focus on valuations
My first one for 2022 was that there would be a strong focus on valuations. This was a great call.
With interest rates rising and liquidity drying up, investors have focused heavily on company valuations this year. As a result, a lot of expensive growth stocks have been crushed.
Take cloud computing company Snowflake, for example. This stock – which had an insanely high valuation at the start of 2022 – started the year near $340. Today however, it’s trading near $140.
Communications company Twilio is another good example here. It started the year near $260. Today though, it can be picked up for less than $50.
These kinds of stocks did very well when interest rates were low and valuations were an afterthought. This year however, it has been a different story.
I went into 2022 with a few expensive growth stocks in my portfolio. But these were balanced out with stocks offering growth at a reasonable price, as well as cheaper, dividend paying stocks. So, overall, my portfolio has held up ok this year.
EV stocks would fall
My second prediction, and this was related to the first, was that small electric vehicle (EV) stocks would underperform due to their high valuations.
This was also a great call. Just look at the share price of Rivian. It has fallen from $103 to $22 this year.
Lucid is another good example here. Its share price has gone from $38 to $7.
These stocks went into 2022 with extremely high valuations relative to their revenues and production numbers. This year however, the valuations have come right down.
I’m glad I didn’t buy these stocks for 2022 as I have avoided some nasty losses here.
Big Tech stocks would deliver
My third call was that Big Tech stocks (I named Apple, Microsoft, Alphabet, and Amazon specifically) would continue to generate solid returns for investors.
This prediction backfired on me quite badly. Ultimately, their valuations were too high as well. And their share prices have fallen in 2022. Amazon has been the worst of the bunch, falling around 50%.
Apple has performed the best out of the four, but it’s still down about 25%.
The poor performances here have hurt my own portfolio. At the start of 2022, these four stocks were all in my top 10 holdings. I thought they offered growth at a reasonable price. I also thought they were quite defensive in nature, given their strong balance sheets and cash flows.
Clearly, I got it wrong in the short term.
I remain very bullish on these companies however. All four operate in high-growth industries and have strong competitive advantages. So I’m going to continue to hold them in my portfolio in 2023.
