Firstly, investors or shrewd traders need to clearly differentiate between investing in productive assets and speculative assets. Productive assets produce something of value (businesses generate earnings, real estate generate rental income, farmlands produce wheat, corn and so on), versus speculative assets that produce nothing (gold, cryptocurrencies and so on).
2022 proved to be a challenging year for global equity markets, with significant declines seen across various major indices. After adjusting for dividends, the S&P 500 yielded –18.1% while the Nasdaq 100 index saw a decline of –32.4%. Meanwhile, the MSCI Asia-Pacific ex-Japan delivered a return of –19.4% and the Hang Seng Composite Index also experienced a loss of –12.6%.
Could active investors have acted defensively ahead of the declines, or should such declines be treated as inevitable in one’s long investing journey? This article seeks to shed some light on the question.
