4 Lessons from 2024
At the end of every year, I try to take time to think about the market lessons I learned or re-learned over the past 12 months. Research has shown that people who take time to reflect on the past, tend to perform better in the future. We feel like this definitely holds true for investors so we wanted to share with you 4 lessons that we learned, or were reminded of, in 2024.
1. Calendar year market returns rarely align with historical average returns. Returns are lumpy as we saw once again in 2024. Since 1928, the average gain in an up year for the stock market is +21%. The average loss in a down year over that same timeframe was -13%. Double digit moves in both directions are the norm. In fact, in 70 of the past 97 years, the U.S. stock market has finished the year with double-digit gains (57 times) or double-digit losses (13 times). Historically, the S&P 500 is up roughly 3 out of every 4 years. We should try to remember that it’s normal for markets to have big moves both up and down. Investors need to be able to handle both.
2. You shouldn’t invest based on predictions. Price targets are pointless. We’ve mentioned this in previous Insight articles but it’s worth mentioning again. Below are the 2024 year-end price targets from some of the biggest Wall Street Firms. The S&P is currently around 5,920 so it was a swing and a miss for most all of Wall Street last year. This is not a one-year anomaly. These year-end price targets have a history of rarely getting it right. The most bearish target in 2024 came from JPMorgan, the biggest bank in the world with access to some of the smartest people and more data and information than just about anyone. Their price target was “only” about 40% off. This is not meant to pick on JPMorgan, but if they can be 40% “off”, we shouldn’t invest based on anyone’s predictions.
3. There is always a reason to worry so we should try our best to tune out the noise. The media’s job is to amplify that noise to get the most views and clicks. The more noise, the better for them. There was lots of noise in 2024 around the Presidential election. It wasn’t hard to find people telling you to sell stocks before the election to avoid the uncertainty.
Does the data support the idea that investors should avoid Presidential election years? Not at all. In fact, it looks like you should do the opposite. Historically, US stocks have actually slightly outperformed during election years AND have a higher percentage of years with positive returns (83% vs. 69% in non-election years). 2024 was certainly NOT a year you would have wanted to avoid.
4. Diversification is simple, but not easy. The concept is simple, don’t put all your eggs in one basket. The problem is that if you have a diversified portfolio, you’re always going to own something that’s underperforming and you’ll never be concentrated in the top performing asset class of the moment. Over the last decade plus, we’ve seen the longest period of outperformance from US Large Cap Growth stocks in history. This could easily tempt investors to buy these stocks and sell everything else in your portfolio. The 3 largest companies in the S&P 500 now make up approximately 20% of the index, which is a record high. Large Cap US Stocks are now trading at 28X earnings vs.18X for Small Caps. This is the widest valuation gap since 2000. We believe that diversification and avoiding concentration will be very important moving forward. There’s a cycle to everything and nothing outperforms forever. Just ask any investor who lived through 2000 to 2009.
Bottom Line: 2025 will likely bring new challenges and lessons. We’ll do our best to use our knowledge, experience and resources to find solutions and keep moving forward. That’s our job and we’ll do it to the best of our abilities.
Happy New Year and best wishes for a happy, healthy and prosperous 2025!
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