The Roller Coaster of Fear & Greed – 2023 Recap & Merry Christmas

Written by Tom Stanley and Drew Mackwell, Investment Advisers, December 2023


  • Returns are rarely average – We often look at rolling 3-, 5-, or 10-year returns and think achieving the reported % return was a smooth ride.
  • But each year’s returns are often very different, 2023 has been a constant roller coaster of fear and greed in its own right.
  • The emotions; ‘Fear’ and ‘Greed’ make investors as a collective overreact – Generally, when markets are up we can’t buy fast enough, when markets are down we can’t get out fast enough.
  • Acknowledging that the emotions fear and greed influence all of us can help us maintain perspective.
  • Being aware that the media’s job is to capture our attention, often playing on fear and greed, rather than inform, can also help us maintain perspective.
  • Getting off a roller coaster before the car has stopped moving is never a good move. As your adviser, it is our job to be the seatbelt that helps you stay in the car on your investment journey.

Have a very Merry Christmas from the investment team at Amicus – please know that we are always here to help!

Returns are rarely ‘average’

Investing pulls on our emotions a lot more than we give it credit for. Many of us find ourselves swinging from joy to downright frustration when we see the $ return of our portfolio.

What’s also challenging is removing our expectations for the upcoming year, especially when all assets, funds, portfolios, and managers are stacked up against each other year-on-year and reduced to a % return ranking.

Such consolidated ‘annualised’ reporting makes it easy for us to fall into the trap of expecting a certain % return on our investments year in year out, and reality often leaves us disappointed. Annualised numbers and our natural tendency to focus on the recent past (see previous note) see most of us overlook the fact that the return from our portfolios seldom align with the ‘average’ –  in reality, they frequently diverge from our expectations – that’s just the nature of investing.

Dimensional Fund Advisors do a good job of presenting this idea in the image below. The image shares:

  • The year-to-year return of the Australian Stock Exchange (S&P/ASX 300 Index) over the past 42 years.
  • The average annual return over this period – 13% per year.

You’ll notice that of the past 42 years, very few years performed in line with the average return. In some years markets shot the lights out, while others performed well under expectations.

The comment that really drove the message home for me: “Only in 4 years has the return been within 2% of the average.”

The idea I am trying to get across here is that you can’t expect your investments to perform in line with the ‘average’ every single year. There will be years when you ‘beat’ the average and there’ll be years when you ‘miss’ the average.

This is why we talk to ‘minimum’ suggested timeframes for each investment strategy and promote a longer-term approach, looking through the inevitable swings of markets and sentiment.

While the above Dimensional graphic talks to variation in annual performance vs the long-term average – the same principle applies to shorter-term observations – The extreme swings of fear and greed in 2023 make a perfect case study of FOMO (Fear Of Missing Out) and I believe may help provide a healthy dose of perspective.
Fear and Greed – The Headlines & Emotional Triggers of 2023
With the 24/7 news cycle, it is difficult to look beyond the morning news, let alone maintain a multi-year perspective.

One way to start addressing this perspective problem, is to acknowledge the problem – Combining the news media with ‘skin in the game’ can offer up a roller coaster of emotion for investors – 2023 is a perfect example.

Looking back at the twists, turns, and corkscrews we have experienced can help us mentally prepare for the future, maintain our discipline, plan for the long-term, and maybe even enjoy the ride.

10 Headlines from 2023:

  • Feb 3, 2023 – ChatGPT kicks off artificial intelligence arms race.
  • Feb. 4, 2023 – U.S. shoots down Chinese spy balloon.
  • March 12, 2023 – US Regional banks fail, prompting federal intervention.
  • May 5 – COVID-19 no longer considered global health emergency.
  • July 25 – Interest rates jump to highest levels in 22 years.
  • Oct. 7, 2023 – Hamas launches terror attack in Israel; Israel responds with bombing Gaza.
  • Oct. 17, 2023 – New Zealand’s Annual Inflation Slowed More Than Expected to 5.6% in Q3
  • Nov. 14, 2023 – Xi, Biden meet in hopes of easing tensions.
  • Nov. 15, 2023 – Stocks surge on backdrop of falling US inflation
  • Nov 30, 2023 – Euro zone inflation sinks to 2.4%, below expectations

A lot to take in… especially considering every one of these events impacted financial markets and every investors portfolio in one way or another; negatively or positively.

While these events may have been the catalysts for market movements, the fuel in the engine room driving markets higher or lower has been investor sentiment (moving from fear and greed). You may have seen me share the below sketch in previous notes, but it hits at a mistake that plays out over and over again. At the top of the market, the investors can’t buy fast enough. When the market bottoms out, they can’t sell fast enough.

Morgan Housel, a well-respected investment author also plays on this cycle of fear and greed:
“Greed is what happens when you delusionally justify your willingness to push to get back more than you put in…. Greed is a blinder to how much risk you’re taking and how much collateral damage your actions have. And it can be blind as a bat.”

“Fear peaks when you start fearing what else you have to fear… You go from taking risks you never should have, to avoiding opportunities you shouldn’t pass up.
Now, back to 2023 – What does this cycle look like in practice?
The below CNN Fear and Greed index as of the 5th December 2023. This index reports a value at the close of each trading day based on seven different indicators that measure some aspect of stock market behaviour. Ratings of above 75 constitute ‘Extreme Greed’ while those below 25 report the opposite, ‘Extreme Fear’.

From my comments above around 2023 being a very emotionally charged year for investors, you can likely picture where this is going.

Below puts 2023 into context from the perspective of the Fear and Greed Index.

  • Start of January 2023 – FEAR: Many were calling for an immediate recession as central banks were fighting inflation and hiking interest rates aggressively.
  • February 2023 – EXTREME GREED: By the end of January 2023 the US stock market (S&P500) was up +6.3% in one month and artificial intelligence mania was setting in with ChatGPT in many headlines.
  • March 2023 – EXTREME FEAR: A classical bank run saw Silicon Valley Bank start a regional banking crisis in the US – In a few days the US stock market was back where it started the year and regional banking shares saw an immediate -30% … but the US regulators stepped in backstopping banks and deposit holders…  
  • July 2023 – EXTREME GREED: Regional banking woes were a thing of the past, the economy was running stronger than expected, and the Nasdaq 100 Index (technology companies) has surged 39.4% year to date, its strongest first-half performance on record.
  • October 2023 – EXTREME FEAR: War and the prospect that interest rates were going to have to be much higher for longer saw a flight to safety with investors selling shares across the board. The 10 Year Treasury briefly breached the 5% mark – a level not seen for 16 years.
  • December 2023 – EXTREME GREED: Within a month, Treasury yields fall drastically as investors pile back into share markets. The S&P500 surges 9.1% – another record month for equity markets. Investors begin to believe that the rate hiking is done and now focus on when interest rate cuts might begin.

What. a. year.
The net result of all this fear and greed? Across 2023, global share markets have rallied nearly 17%. While this may sound like a really great year, it is only small respite from the past 18 months of very challenging markets with many countries and asset classes yet to bounce back fully.

The key point of this note is that if you bought into the fearful recession focused sentiment at the beginning of 2023, you would have sat on the sidelines and likely missed out on what has been a nice bounce. For those who have stayed firmly seated in the rollercoaster, well done – it hasn’t been a fun, or comfortable year, but to quote Robert Arnott:

“In investing, What is comfortable is rarely profitable,”

Where to from here?
If you find yourself comparing your recent performance with that of previous years’ or are becoming worried or unsure about the outlook of your investments, please feel free to reach out. It is our idea to help you control what you can, be that your plan, process or how you are investing.

We do send out regular reviews offers, but you can book a 30-minute phone call with your adviser at any time (see the below links).

We are here to help, and it is our job to help you get the most out of your investments.

Have a very Merry Christmas from the team at Amicus.

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