Q3 2023 Takeaways

September 28, 2023

Another quarter is (almost) behind us. As every investor knows, there are always lessons to be learned from time in the market and the past ninety days of activity were on exception. Below I summarize three key learnings from Q3 2023.

1.) It’s a Long and Winding Road

This quarter was a great reminder that wealth creation is not a straight line – but rather it is more of a “long and winding road.” Markets gave back a bit of the returns generated in the first half of 2023 (in what had seemed to be a pretty straight line up). Such two steps forward/one step back movement is very common, as shown in the chart below. From January 1993 to January 2023, a $100,000 invested in the S&P 500 would have grown to $1.57 million. Not all at once, not in a straight line, not overnight – but in a non-linear fashion achieved by being invested one day at a time, over and over, for thirty years. A long, winding, and rewarding road!

2.) Interest Rates = Foundation of Returns

For many investors, they have likely never paid this much attention to interest rates in their lives. Yet now, rates are top of the news and top of mind in so many areas – from cash management to car financing to home purchases and more. Interest rates are no longer an afterthought – they are the first thought. This level of attention is very well deserved as interest rates have always been the building blocks of all asset performance as they drive returns and valuations over time.

This quarter was a sharp reminder of this concept, as interest rates reached levels not seen in many years. These increases have born out many consequences including: higher returns on cash/cash equivalents, declining principal values of existing bond holdings, increasing coupons/yields on new bond holdings, rising mortgage rates, rising car loan rates, and declining equity values (especially in high growth areas of the market where an increased discount rate has the highest impact on future cash flows’ valuation).

Interest rates are back in focus, after years of being at or near zero. While the journey to a normalized yield curve has been painful (and not yet concluded), it will result in higher returns across many asset classes moving forward.

3.) “Momentum Thinking” Can be Dangerous

During 2023, it’s been very clear that “momentum” applies not only to certain stocks/trade ideas – but also to market participants views and thoughts on the market.

At the start of this year, markets were coming off a tough 2022 and inflation was still high. Consensus was that markets could only move lower and that we’d never see an end to this cycle. And yet, soon markets started moving exponentially higher as inflation fell and consensus seemed to toggle 180 degrees overnight to positive (remember the AI mania?) Fast forward to Q3 – markets correct a bit, volatility picks up, the Fed raises a few concerns over growth, fears about high rates bubble up, and here we go again, market consensus flips back to negative.

This “momentum” thinking can be dangerous, as it leaves little room for a contrarian voice and for the very real possibility that every trend line can reverse course.

As an investor, you need to guard against blindly following the “momentum thinking” – whether it is in support or or contrary to your goals. All predictions and group thinking are just that – predictions. No one actually knows what the future holds.

It’s far more instructive to do the work yourself. Take all data, projections, historical analysis, and available commentary into account. Assign probabilities to various outcomes (as you don’t know the future either). Consider the contrarian viewpoint. Evaluate the “momentum thinking” viewpoint. And then layer all those inputs onto your investing foundation (core tenants such as rebalancing to your target allocation, buying high-quality businesses, remaining mindful of valuation metrics, managing concentrations, etc.). This will likely prove to be a far better approach than simply “riding the wave” until the momentum thinking changes yet again.


Another eventful quarter in the books. Feel free to hit reply and let me know a lesson you’ve learned. As for what comes next in the final quarter of the year, you’ll just have to tune in next week as we focus on that very topic!

Onward we go,

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