Last year was the worst year for the stock market since 2008—and for good reason. The nearly 19% drop in the benchmark S&P 500 in 2022 capped many years of wild speculation in capital markets driven largely by the Federal Reserve’s era of free money and government handouts.
Dangerously loose fiscal and monetary policies sparked a seemingly endless parade of worrisome investing trends—a spike in special purpose acquisition companies, numerous profitless initial public offerings, the rise of meme stocks and the euphoric surge in crypto prices. Investors decided to ignore core investing principles in favor of speculation and gambling, blindly pouring money into stocks that should never have entered the public markets in the first place—Carvana, Peloton Interactive, Beyond Meat, Robinhood, Affirm, Sweetgreen and more. They’re all down at least 75% from the highs of 2021, and many are down much more. The inevitable and yet still sudden tightening of policies designed to curtail such reckless behavior led to yet another disaster—the collapse of Silicon Valley Bank.
Proper consideration would have revealed that many of the companies going public in 2020 and 2021 were zombies with poor business models. They faced stiff competition and offered undifferentiated, nonessential goods and services, yet their stock prices soared. There was a total disregard for due diligence.