Interesting chart @Solvetheriddle
I think yours is a good take -- on an average basis, assuming we see a recession, most of the damage has already been done. There are always edge cases of course, so this guarantees nothing, but i definitely think it's a useful perspective.
One thing I'm mindful of is that things will likely be worse at the small cap end of the market. In fact, in good times and bad, the moves are exaggerated in this space. The Strawman Index is a sign of that, I think. While we thumped the market during the good times, we've been hit harder than the 'blue chips' during this latest downturn.
In the world of "high beta" small-cap stocks, I see this as a feature, not a bug, and it is what provides the opportunity for outsized returns across the cycle. But it does test you during times of volatility.
Personally, my concern is that while a lot of the companies that I own have seen good progress on the business front, a big part of the historic returns were generated through multiple expansion -- 15 years ago few people would consider a price to sales ratio of 20 as sensible, but (until recently) that became common place. It was never part of the thesis, but you're not going to knock it back! Trouble is, "trees don't grow to the sky", and market multiples have a way of reverting to the mean. Add to that the fact that the market is now a lot more wary of loss making operations, and with rising inflation/rates, those stocks whose cash flows are still a few years out are given less rope.
Hindsight would suggest that cashing out late last year was the best move, but i'll never lose any sleep over that. Having predicted 10 of the last 2 corrections (to paraphrase the old joke), I think i'm best served just staying invested and rolling with the punches.
What's more important is to ensure my current expectations are well grounded. And here, honestly, my view is that more than a few of my stocks aren't likely to get back to previous highs anytime soon. That being said, given the size of some of the falls, i think the value proposition at current prices looks a pretty reasonable -- even if I pull back on some of my previous growth and multiple assumptions. I could entirely imagine further falls in the months ahead, but I'm trying to keep my gaze focused on what these stocks look like in 3-5 years time.
2022 will probably be remembered as a painful year for investors, but hopefully one that also presented some great opportunities. I just hope i choose the right ones!
