The 2022 financial year has just wrapped up, and what a year it was. FY2022 saw a massive increase in share market volatility – to levels investors not seen since the onset of the pandemic back in early 2020. Over the financial year just gone, the S&P/ASX 200 Index (ASX: XJO) ended up losing 10.19%.
So in a year where share markets went backwards, what are some of the lessons we, as ASX investors, can take away?
Here are three:
3 ASX investing lessons from FY2022
Don't trust the RBA
Perhaps above all, FY2022 has reminded us of how important the Reserve Bank of Australia (RBA) and interest rates are when it comes to ASX shares. For most of last year, the RBA was telling us all that it only intended to start raising interest rates in 2024. Rates would be kept at the all-time lows that we saw last year at least until then.
Well, that didn't last too long. As every investor would be aware, the RBA has now raised interest rates three times in 2022 thus far, and most rises have been 'double' increases of 50 basis points.
Ultra-low interest rates were good news for ASX shares. It's hardly a coincidence that the volatility we have seen on the markets across FY2022 only really started occurring when it became obvious the RBA was going to jettison its 2024 commitment and start hiking rates this year.
So our first lesson from FY2022 is: don't assume the RBA's word is gospel.
Trends don't last forever
The past decade has been one that has been especially kind to ASX tech shares. To illustrate, the S&P/ASX All Technology Index (ASX: XTX) rose an extraordinary 59.2% in 2020 and another 13% between January and November 2021.
It was a similar story with US tech shares. Back in January 2021, the BetaShares NASDAQ 100 ETF (ASX: NDQ) had a trailing five-year average performance of 22% per annum. So it seemed like a no-brainer to have at least a good chunk of one's portfolio invested in tech shares.
But FY2022 has turned that on its head. Last financial year saw the All Tech index fall by a painful 35%. Investors didn't get much of a safe harbour from US tech shares either. FY2022 saw the NDQ NASDAQ ETF fall by around 20%.
Many of the ASX's most prominent tech shares fell by far more. For example, FY2022 saw Block Inc (ASX: SQ2), one of the largest ASX tech shares on the market, lose almost 49% of its value. Buy now, pay later (BNPL) share Zip Co Ltd (ASX: ZIp) plummetted more than 94%.
So even though a trend can last for years, and make ASX investors buckets of cash, do not ever think that it will go on forever. As we have seen, this assumption can be a painful one to keep.
Volatility can be an opportunity
Volatility can be uncomfortable and painful, but it can also bring us some incredible opportunities. To illustrate, let's look at the Adairs Ltd (ASX: ADH) share price. Adairs shares have had an incredibly volatile year, with the company remaining down more than 45% over the past 12 months.
But if an investor took advantage of the volatility that saw Adairs drop to $1.65 a share just last month, they would be sitting on a giant of more than 26% today. Similar gyrations like this have occurred with dozens and dozens of ASX shares over FY2022.
This shows that volatility can be taken advantage of, and with lucrative results. But only for the ASX investors with the mindset to 'be greedy when others are fearful', as the great Warren Buffett would say.
