When “Doing Something” Felt Safer Than Doing the Right Thing
If 2020 was the year of panic, and 2021 was the year of euphoria, then 2022 was the year that tested discipline.
Investors entered the year still conditioned by a decade of low rates, easy money, and a market that generally rewarded buying dips. Then the environment flipped. Inflation became the dominant force, the Federal Reserve turned aggressive, raising interest rates 7 times. Both stocks and bonds fell together—an experience many balanced investors had never lived through.
And when markets change regimes, investor behavior tends to change with them—often in the least productive ways.
2022’s Backdrop: Inflation, Rate Shock, and the Diversification “Surprise”
The defining theme of 2022 was inflation. Price pressures that started in 2021 proved persistent, ultimately peaking above 9% in the summer.
The Fed’s response was swift. Rates went from near zero to over 4% in one of the fastest tightening cycles in modern history, while the Fed also began shrinking its balance sheet (monetary tightening).
This is where investor psychology really got tested: as rates rose, valuations reset. Stocks declined, but bonds also declined as yields repriced higher. The 10-year Treasury yield moved from roughly 1.5% to around 3.9% by year-end, and core bond indexes suffered one of their worst years on record.
So, the emotional cocktail was potent:
- “My stocks are down.”
- “My bonds are down.”
- “The news says inflation is out of control.”
- “The Fed is determined to tighten until something breaks.”
That’s exactly the kind of environment where investors feel compelled to act—and where the temptation to time, rotate, and chase becomes most dangerous.
The Two Most Common Bad Behaviors of 2022
1) Market Timing: Selling Risk to “Wait Until Things Settle”
In real time, market timing always sounds prudent: “Let’s step aside until the dust clears.” The problem is that you don’t just need to be right, you must be right twice—when you sell, and when you buy back.
And the market has an inconvenient habit: the best days often cluster near the worst days. That’s why missing only a small handful of strong rebound days can permanently dent long-term results. One example cited in our market timing research: from January 2010 through June 2024, the S&P 500 returned nearly 12% annualized, but missing the 10 best days cut that to about 5.7%.
In 2022, the “wait it out” impulse was amplified by how uncomfortable the headlines felt:
- Inflation at 40-year highs.
- War in Ukraine pressuring energy markets.
- The Fed overtly prioritizing price stability, even at the cost of economic pain.
Many investors didn’t just reduce risk—they stepped out entirely. And the longer you’re out, the harder it becomes to get back in, because “confirmation” typically arrives after prices have already moved.
2) Return-Chasing and Style Whiplash: Rotating Right When Leadership Is About to Rotate Again
If market timing is the urge to move between cash and risk assets, return-chasing is the urge to move between winners and losers.
2022 delivered a textbook leadership rotation. Energy was a standout, helped by surging oil and gas prices following Russia’s invasion of Ukraine. Meanwhile, the prior era’s leaders—large growth and tech—were punished as higher rates deflated long-duration valuations.
Here’s the behavioral trap: investors tend to buy what just went up and sell what just went down. Media narratives fuel that impulse—and the media tends to arrive late.
In 2022, energy stocks returned roughly +65.7% and commentary was suddenly bullish: “energy has even more upside next year,” and “energy stocks could continue making money for investors.”
But the contrast is the point: just 24 months earlier, when energy had been down heavily, the tone was essentially “stay away.”
On the other side, growth stocks were down sharply (for example, Russell Top 200 Growth -29.7%; Russell 1000 Growth -29.1%), and the tone flipped to caution: “too early to get back into tech,” “still too pricey,” and “investors are hesitant to jump on the rebound.”
Yet the “look-ahead” reality was that growth roared back in 2023 (the same growth indexes were up over 40% in the following year).
That is whiplash in one sentence: investors are often talked into buying the winner near the end of its run and talked into abandoning the loser right before it rebounds.
What Good Behavior Looked Like in 2022
A hard year does not demand heroic moves. It demands disciplined ones.
1) Staying Invested When the Plan Hasn’t Changed
2022 was painful, but it was also a reset. Higher yields improved the forward-looking return potential of high-quality fixed income, and lower equity valuations laid groundwork for future returns.
Good investors didn’t confuse a regime shift with the end of investing. They accepted that down years are part of the price of admission—and that turning temporary declines into permanent losses is usually a behavioral choice.
2) Rebalancing Instead of Rotating
There is a world of difference between:
- Rebalancing: trimming what held up better and adding to what got hit harder to keep risk aligned with your long-term plan.
- Rotating: chasing what’s hot because it feels safe now.
In 2022, rebalancing was emotionally difficult because it often meant adding to the very areas that felt broken (growth, long-duration assets) and trimming what felt “obvious” (energy). But disciplined rebalancing is one of the few reliable ways investors can systematically “buy low and sell high” without pretending to predict market tops and bottoms.
3) Separating “Headline Risk” from Portfolio Risk
Media narratives in 2022 were loud, urgent, and often framed as binary: inflation is either solved or it isn’t; the Fed is either done or it isn’t; recession is either imminent or it isn’t.
But portfolios are not built for one headline. They are built for a lifetime of them.
The 2022 Takeaway: Discipline Is Not Passive—It Is Protective
To best summarize 2022’s investor-behavior lesson in one line, it would be this:
When both stocks and bonds are down, the temptation to abandon discipline feels rational—but that’s exactly when discipline is most valuable.
The best investors were not the ones who guessed the next CPI print or perfectly timed the Fed’s next move. They were the ones who:
- kept their long-term plan intact,
- rebalanced rather than chased,
- and refused to let the news cycle dictate their allocation.
Because in investing, the enemy is rarely the market. It’s the investor’s impulse to react to it.