Despite 2021 being another year defined by COVID-19 impacts, ASX share investors managed to come out ahead. During the year, the S&P/ASX 200 Index (ASX: XJO) returned 13% (before dividends) — which is well above the average total return of 9.3% over the past 10 years.
As we begin to get comfortable with the New Year of 2022, now seems as good of a time as any to reflect on the ASX share market in 2021.
For many investors, 2021 entailed discovering new lessons and remembering some old ones.
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FOMO can be a dangerous beast
Early into the year, portions of the ASX share market began displaying signs of classic fear of missing out (FOMO) mentality. For example, buy now, pay later (BNPL) shares gathered an unusual amount of interest in February 2021. This resulted in booming share prices across some of the more speculative companies in the sector, including:
- Ioupay Ltd (ASX: IOU) gaining 412% in two weeks
- Fatfish Group Ltd (ASX: FFG) rising 800% in two weeks, and
- Cirralto Ltd (ASX: CRO) climbing 100% in two weeks
On reflection, this FOMO approach often didn't pay off for ASX investors. From February 2021, all three companies fell 40% or more by the end of the year. As Fidelity International investment director, Tom Stevenson puts it:
FOMO is the enemy of investment success. It sucks people into markets at precisely the wrong time. It is the cause of bubbles and the reason markets overshoot.
Thinking long term can be a superpower
What can often set average returns apart from amazing returns is a long-term approach to investing. As the saying goes, "Time in the market beats timing the market".
An example of this is the benchmark index itself. An ASX investor buying the index at the beginning of 2020 would have been down 28% after three months. However, if that person took a long-term approach, they would now be up 12.4%.
In an interview last year with The Motley Fool, Bennelong Funds Management research relationships director Stuart Fechner said:
You can never tell how long it will take for a market fall to be recovered but we all know it will be. If you can keep your head in such turbulent times there are opportunities to be taken that will provide benefits over time.
Markets can humble even the greats of investing
The last lesson from 2021 comes from one of Australia's most renowned fund managers, Magellan Financial Group's (ASX: MFG) Hamish Douglass.
In a monthly update for December, Douglass addressed the underperformance of Magellan's funds. The ASX investor admitted he had made a few mistakes during the year which led to the undesirable performance. When referencing this, Douglass said, "Markets can be very humbling…"
This illustrates the unpredictable nature of investing. Sometimes even some of the most experienced people in the game make mistakes. However, like Douglass, investors can adjust accordingly. If anything, this serves as a reminder that ASX investors can still succeed in the long run, despite some hiccups along the way.
