Who was on the stock exchange in the last 12 months necessarily lost money?

Until last year, the Stock Exchange was one of the favorite topics of investors. The topic also gained increasing relevance on social media. The background for this mood was the basic interest rate situated at historically low levels, which led to a search for greater gains in the variable income market, such as the stock market.

In addition, the expected recovery of the economy after the lockdowns 2020 and 2021 – due to the coronavirus pandemic – created a positive expectation for the performance of companies and the possibility that the basic interest rate will not go through many increases.

In the last quarter of 2020, analysts believed that publicly traded companies would return to the pre-pandemic trajectory in 2021. At the time, many stocks were still “supposedly” at a bargain price (when the fruit was cheap…), and investors continued shopping until the stock exchange reached its all-time high even after the incidence of new waves of Covid-19, 130 thousand points, in June 2021.

Here it is worth remembering that, in the first quarter of 2020, with no vaccine available against the coronavirus, we had a collapse of the stock markets, reflecting the great level of uncertainty associated with the future of the economy. After the panic, the Ibovespa recovered completely until December of that year.

In order for the Stock Exchange to have this rapid recovery, after the panic, a large inflow of capital was necessary. At the time, fixed income was not making investments profitable, due to the low Selic.

From an economic point of view, the decision of the monetary authority made sense. The risk of recession caused by the interruptions in economic activity still haunted the monetary authority.

Inflation comes into play

But, at the end of 2012, the IPCA (Broad Consumer Price Index) accumulated a high of 4.5%, leading the Brazilian economy to negative real interest. Look! In response, the BC’s Copom (Monetary Policy Committee) raised the rate from 2% to 9.25% within 12 months.

At the end of 2020, therefore, the increase in inflation and the maintenance of the Selic at low levels encouraged investors to take on more risk. Even because the accumulated profitability of the Ibovespa was the lowest for the year, it was already over 80%.

The fact is that the only certainty we have in the investment world is that everything changes over time. A successful strategy at time “A” can be catastrophic at time “B”. And that’s exactly what happened! Enter a villain that has long been off the radar. INFLATION!

But here I’m talking about global inflation and not just in Brazil, as we were used to. For some time now, the upward movement of prices has been controlled in developed economies. This fact was the prerequisite for such expressive drops in interest rates in countries around the world.

Since 2021, and intensifying this year, consumer inflation has hit record levels in both the US and Europe. Several factors combined made this picture possible.

From the point of view of demand, most governments of rich countries “printed” money and distributed it to the population, which was at home, making it possible to increase consumption, especially online.

At the same time, after the peak of the lockdownsan unbridled demand for services was perceived, which ended up affecting prices.

On the supply side, the successive lockdowns disorganized supply chains, making access to electronic components, among other items, very difficult. Climate problems and now geopolitics have collaborated to accelerate the price of commodities.

Investor flight from the stock market

As previously stated, the BC was proactive and began the monetary tightening in May 2021. In mid-January 2022, the Selic rate was already at 9.25%, and the Ibovespa had already fallen by more than 20% from its historic high. .

This combination of factors led to a reversal of the mentality of the individual investor and an outflow from the stock market was seen, mainly in “growth stocks”.

Here it is worth reflecting. Very low interest rates “push” investors to the stock market and many of them end up buying “fashionable” stocks. This is a common phenomenon in times of Bull Markets (bull markets). The same stocks are thrown to the “moths” and, when liquidity turns, this flow of unsuspecting people rushes back to fixed income.

It is possible to find several recent evidences in the market that empirically validate this thesis. Magazine Luiza (MGLU3), for example, is a company considered a darling of individual investors and trumpeted by the mass of influencers as guaranteed success, due to its great growth potential.

Indeed, this asset gave many joys to those who knew how to speculate it, but in the same way that the “pool was full, it was emptied”.

After surfing the wave of increased online sales in 2020, Magalu began to feel, in late 2021 and early 2022, a significant decline in its growth. Competition was listed by the company as one of the main factors.

This deterioration led to the abandonment of the paper by some institutional investors, and the selling pressure was the trigger for a “race to the mountains”.

Let’s understand a little better: many buyers have pulled the company’s market value into the stratosphere (a kind of bubble). When investors decided to exit the stock, the door became small.

Opera summary: after hitting R$24 reais in July last year, MGLU3 is worth less than R$4.00 per share today. Many stocks like this have dropped, evidencing the market’s change of mood.

Bad for Ibovespa

Now stronger evidence can be seen in the behavior of the main index of the Brazilian stock exchange, the Ibovespa. After reaching the all-time high in 2021, the indicator took a downward turn and reached 103,000 points in the same year.

In 2022, the Ibovespa even tried a recovery, as a result of the inflow of foreign capital, but it fell in the same way that it rose during their exit. Investors, both local and international, remain apprehensive about the maintenance of the global inflationary scenario, which has demanded a more conservative stance from central banks.

The war installed in Ukraine, lockdowns in China, high commodity prices, among other factors, have increased the risk of the global economy going into recession due to the policies to combat inflation adopted by the world’s economies.

It is worth noting the concern with the speed of interest rate hikes on the part of the Fed (Federal Reserve), the American central bank. Strong household consumption and pressure on fuel prices have increased the risk of accelerating the rise in the basic interest rate in the US. This is bad for both the bag there and here!

Investors who stayed on the stock exchange lost money?

Not necessarily! An index is nothing more than a theoretical portfolio of stocks and is usually well diversified. Because of this, we cannot say categorically that all investors who remained on the stock exchange in the last year were at a loss.

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Let’s see, for example, the return of the two great stars of the Brazilian stock exchange. The share of Petrobras PN went from a price of BRL 18.35 on May 21, 2021 to BRL 27.92 on May 25 of this year. Not bad for such a complex period of high interest rates.

The various success stories are visible, considering the last 12 months. So it is possible that there are investors who have been successful. But, as the Ibovespa is an indicator that depicts the average behavior of the most liquid stock portfolio on the market, we can say that investors lost resources in the period.

How are investors with positions in stocks that have depreciated a lot in the last 12 months?

This will depend a lot on each case! Many stocks with high expected growth, such as the example of Petrobras presented here, were traded in the recent past at stratospheric levels and because of that they have been devalued so much.

I believe that some of the examples above will take time to recover from previous levels or may not even return to their respective historical price highs. On the other hand, companies that have good management and have had their results negatively affected by circumstantial issues still tend to bring joy.

This joy can also be found in the assets that are benefiting from this challenging scenario. An example recently observed was (again) that of Petrobras.

That’s why it’s important to point out that every investor should use their recent loss as a learning tool. Especially those who invested on impulse or followed some tips from friends or the internet itself.

Remember that what will make the difference in future investments will be the investor’s ability to structure an investment thesis. Exchanging assets with no future for solid investment theses can greatly favor the profitability of those who are stuck in a position.

investment thesis

The first step that can be taken to learn how to carry out an investment thesis is to enroll in the root investor project in EducateMap. Through it, you have access to a free introductory course to classical fundamental analysis. Discover the seven pillars that underlie an investment thesis.