Although the quants will disagree, Trading is much more an art than a science experience; diligence, a knowledge of history, an open mind, and an obsessive nature are all essential ingredients for success.
2022 Back look
1. the S&P 500 fell by 19%. including dividends, the total return was -18%. this ranks in the 5th percentile of all annual returns since 1962.
2. realized volatility was 24%. this ranks in the 92nd historical percentile.
3. putting those together, the ratio of S&P return-to-vol was -0.7, ranking in the 12th historical percentile.
4. the largest S&P peak-to-trough drawdown during the year was 25%, almost 2x the median historical annual drawdown.
5. the market traded higher on just 43% of days in 2022, the second worst year since WWII (after 1974). this is interesting: the median gain on those days was 115 bps, the highest in postwar history.
6. 31% of S&P stocks posted positive returns, including 66 names up 20% or more and 18 names up 50% or more. on the other side, 188 stocks closed down more than 20% and 26 names were down 50% or more.
7. NDX returned -32%, lagging S&P by 14 percentage points and registering the worst year of underperformance since 2002.
8. UST 10-year notes returned -16%, the worst return on record.
9. only two of the GICS level one sectors generated positive returns: energy +65%, utilities +2%.
10. the worst sectors: communication services -40%, consumer discretionary -37%, information technology -28%.
11. the best global markets (in local FX): Venezuela +254%, Turkey +207%, Argentina +142%.
12. the worst: Russia -37%, South Korea -24%, China A-shares -20%.
You have probably seen work suggesting that one should not try to time the markets, as missing the best days is a serious drag on returns.
While that rang true again (see the gray line), for the world's best traders, note how dodging the worst days this year generated an immense amount of alpha (see the light blue line):
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