Why the stock market in 2023 could offer me once-in-a-generation returns

With 2022 now upon us, my focus is on making the best of this year. Given the poor performance of the stock market last year, I think the current backdrop could provide excellent long-term returns. But isn’t inflation at a record high and the UK in recession? yes already! But that’s what I mean. Let me explain.

Notes from Warren Buffett

As one of the greatest investors of our generation (and previous generations), Warren Buffett has been through it all. One of the wisdom is “be greedy when others fear and fear when others are greedy”.

The point is that during times of uncertainty or worry, they will take a chance and buy stocks. The reason for this is that when people are afraid, they can make irrational decisions and sell stocks that are fundamentally good. This pushed the share price below its fair value. At this point, buying below fair value can lead to profits in the coming years when the market stabilizes and recovers.

During the space of 2022, investors have an uncertain time. These reasons include the war in Ukraine, high inflation, rising interest rates, and more. As a result, I sit here at the beginning of 2023 and think that there are some stocks that have fallen below the same price.

Bearish peak

The phrase that started to be thrown around was that the stock market had reached a bearish peak. A bear is used to identify people who think the market will fall. If we have reached the height of pessimism, it may be time to start buying.

I feel that most of the bad news has been priced into the stock prices of most companies. We all expect high inflation to hurt our pockets this year. We’re all pretty glum about the recession, too. But these points are no longer surprising. The expectation bar is set to low. So it will be difficult for the market to continue falling in 2023, unless we get new bad news.

Gems in the stock market

There are 18 shares in the FTSE 100 down at least 30% in the past year. Not all of these will be smart buys. But I know a few on the list that I’m thinking about buying. This includes the Scottish Mortgage Investment Trust and Move right.

I’m not sure I’ll have another chance in this generation to be able to pick up large-cap stocks at a huge discount to where they were trading a year ago. If my theory is correct and we have reached peak bearishness, then the return in the coming years could be very large.

The main risk for my view is that a fresh negative catalyst hits us, causing a stock market crash. To try and manage this risk, I will buy value stocks this year and not go all in immediately.