Last year was dismal for the Australian stock market. Indeed, the S&P/ASX 200 Index (ASX: XJO) posted its second-largest annual loss of the last decade, falling 5.45% over the course of 2022.
Fortunately, there's likely a silver lining to the market's mayhem. I believe the downturn has brought about a once-in-a-generation opportunity to realise major returns.
Taking Buffett's advice in 2023
Last year brought soaring inflation, multiple interest rate hikes, and a war in Ukraine, all of which contributed to a tumultuous year on the ASX. And such factors haven't abated yet.
But I'm still following the advice of investing great Warren Buffett. The billionaire once told investors:
[W]e simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
And that's how I plan to approach the stock market in 2023.
When most market participants are fearful, quality shares are more likely to trade below fair value amid low expectations. Of course, the cheaper one buys a value share, the larger their potential returns.
Though, it's worth noting no investment is guaranteed to provide gains or downside protection.
Looking back on the 2018 downturn
2018 was this decade's worst year for the Australian stock market. The ASX 200 plummeted 6.9% that year amid a trade war between the United States and China, the Banking Royal Commission, and a rough reporting season.
No doubt, then, investors who entered 2019 particularly wary were surprised by the market's recovery. The ASX 200 jumped a whopping 18.4% that year – likely putting a smile back on investors' faces.
Of course, 2023 probably won't shape up like 2019. While this year looks like it could be better for investors, key economists aren't expecting a jaw-dropping recovery.
For starters, interest rates are tipped to grow further this year amid a continuing battle against inflation. Additionally, there are more questions than answers as to the end of the war in Ukraine.
But, it is likely some quality shares were dragged down in the ASX's 2022 calamity. And I think some could be ripe to provide once-in-a-generation returns in the years to come.
Where I'll be searching for stock market winners in 2023
Of course, not all stocks bruised by 2022 will prove to be future winners.
However, the disparity in ASX 200 sectors' recent performances has likely provided a once-in-a-generation point to begin searching for diamonds in the rough.
For instance, while the market was buoyed by S&P/ASX 200 Energy Index (ASX: XEJ) stocks, many S&P/ASX 200 Real Estate Index (ASX: XRE) shares suffered. The real estate sector fell 24% over the year to 31 December.
The S&P/ASX 200 Information Technology Index (ASX: XIJ) and the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) could also house future winners. They tumbled 34% and 23% respectively last year.
Though, it's also possible that the market could continue sliding in 2023. Particularly, given predictions of global recessions and the potential for more unexpected and unfortunate happenings.
