2022 proved to be a challenging year in which the damage from simultaneous setbacks in
stocks and bonds was amplified by the failure of traditional stock/bond diversification
strategies. Those who embraced cryptos were hit especially hard.
Against this backdrop, Eriswell is delighted to have generated positive returns in our core
NGDP1 Defensive Portfolio which returned 7.4% since January 1, 2022, and 15.7% since its 15
October 2021 inception.
But the most important lesson from 2022 – by far – was that predicting the future is extremely
hard. This time last year, few predicted the severity of the inflation shock, and even after the
commencement of war in Ukraine, experts mistakenly stuck to their view that inflation would
prove transitory.
And that’s the problem with traditional forecasting models. You kick-off with a playbook you
think markets should follow, followed by a set of macro-economic assumptions including the
path of growth, interest rates, inflation, energy prices, household demand, labour productivity,
market competition, and so on.
Thinking you can predict the future like this is like believing in Santa Claus. Because the whole
process turns to dust when markets choose to ignore their so-assigned playbooks. As they
have done for several years now.
And will likely do for several years more.
This does not mean that good forecasts about the future are impossible. Or that great stocks
are impossible to find. Far from it. But to do so, one must keep an open mind as to what may
happen and what may not. To be radically honest about what we know and what we don’t.
This approach underpinned Eriswell’s March-2021 forecast that a violent inflation firestorm lay
ahead, a prediction which laid the foundations for the strategies we pursued in 2022.
As our eyes turn to 2023, we foresee more surprises, including a more rapid fall in inflation
than the market expects. No one can be sure when the next crisis will strike, what form it will
take, or which assets it will affect. What we can, however, say with some confidence is that
there will be another one before too long, perhaps as early as 2023.
Finally, and most importantly, to all of you who have chosen to invest with us, we are aware
that the investment journey takes courage and determination. Sometimes scary, it is a path few
can walk alone.
We will once again endeavour to do the very best we can for you in 2023 and beyond.
Mark Page
