Here are two key stock market lessons from 2023

I’ve just been looking over an interesting bit of stock market research from investment platform AJ Bell, and the lessons its analysts take from it.

But here I want to offer my own thoughts on what the past year has taught me so far.

There’s one contrast that really does strike me. Capital returns from the FTSE 100 in 2023, up to 18 December, came to 6.5%.

That’s fairly close to the index’s long-term average, maybe held back a bit by inflation and interest rates.

US soaring higher

But over in the US, the S&P 500 has gained 25.5% in the same timescale. And the Nasdaq is up 42.4%.

I take my first lesson from that, and it’s not what some might think. Do I deduce that US stock markets are a better place to invest? If we want high-tech growth, probably yes.

But for long-term dividend investors like me, this puts the UK market on top every time. I want share prices to stay low, with stocks on lower valuations, so I can nail down even better long-term dividend income.

Stock market crash?

I keep seeing headlines shouting about a new stock market crash in 2024. But it’s all US commentators, talking about an overheating S&P. I feel a lot safer here with our cooler Footsie.

The report also suggests that it can be tempting to see the 2021-22 period as an aberration, as we bounced back from the Covid pandemic. And that things are starting to get back to normal.

I think that might be right, but it brings me to another lesson I take from the year.

Things change, every year

I’d say every year is an aberration, in its own way. Nothing is ever exactly the same. Something is always different — maybe a bit, maybe a lot.

Trying to adjust to changing conditions can turn a sensible long-term investor into a reckless short-term trader. Well, maybe I exaggerate, but I hope readers know what I mean.

If I chop and change, and try to micro-adjust my strategy to follow fads and fashion, I’m going to waste a lot of time. And probably a good bit of money in charges, buying and selling things when I shouldn’t.

My overall take

So that’s two lessons really, but they combine into one general approach. It’s summed up by Warren Buffett’s famous idea: “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.“

Imagine we’d set up a Stocks and Shares ISA a decade years ago, and arranged regular stock purchases. And then we went off on a deep space mission (or something) for 10 years.

We get back, have no idea of what happened in the world in the time we were away, and check our ISA.

And if we managed to match the average over the period, we find our pot has grown by 9.6% per year. Wouldn’t we be happy with that? I know I would.