We end the year with inflation above 7% and the stock market below 15% (and still declining). The Federal Reserve Bank has worked very hard this year to bring inflation down from its peak of 11%+. Unfortunately, the end does not appear to be in sight. We’ve counseled clients to stay invested and ride this out. And that is very hard to do! As the year ends, let’s look at some lessons we’ve learned from the markets.
- Ghosts of Markets Past – This ‘ghost’ relates to businesses that have failed to advance and adapt to changing times. Think of companies like Blockbuster and Borders. Both were phenomenal winners in their heyday. But as we moved to an electronic age, they failed to change their business models to take advantage of new trends and opportunities to evolve.
- Ghosts of Stocks Present – While some companies live in the past, others take the lead. As Blockbuster went bankrupt, Netflix took advantage of the emerging online trend and became a leader. Remember their business model started by sending CDs in the mail?? They adapted and changed to keep up with the times. Similarly, Borders held on until March 2022 before it finally gave up. And who emerged to take their place as the leader? Amazon. And they also started as an online bookstore, but have developed and grown over time as the world changes.
- Ghosts of Stock Future – Just because a company is today’s market leader, doesn’t mean it will stay the leader. Netflix is facing challenges as more competition has emerged in the streaming marketplace like HBO Max, Disney+, YouTube and Hulu. Instead of relying on what a firm is already good at, they need to look for new ways to improve and grow.