When we sum up 2024, we can see that the year so far has ended with an increase of 6% for the Stockholm Stock Exchange. Compared to historical data, this appears to be a stable and fairly typical year. But what does 6% actually mean in the context of previous years, and what conclusions can we draw from it?

It may be tempting to dismiss a 6% year as boring or redundant in the pursuit of high returns. But in reality, these are the years that lay the foundation for long-term success.

1. Steady returns build capital: Years like 2024 contribute to a stable build-up of capital over time. Historically, years with extremely high returns have been found to be few, while the majority of years deliver more modest but consistent results.
2. Risk management: Having realistic expectations of returns reduces the risk of making impulsive decisions, such as exiting the market during small declines.
3. Competitive advantage: A year like 2024 is easy to underestimate, but when we look at the long term, these “middle years” prove to be invaluable.

Below we see the development of the Stockholm Stock Exchange for each calendar year since the beginning of the 20th century.

Below we also see the declines during the year. The stock market fell by 8% from peak to bottom in 2024 (max drawdown), which occurred in August. At that time, many experts were predicting a recession in the US. Indicators of investor sentiment quickly swung from optimism to pessimism.

Only two companies rose 200% or more in 2024 – Precise Biometrics and Isofol Medical. When trading trend/momentum, it is precisely such extreme movements that you try to capture to create a positive skew in the distribution, meaning that a few big winners compensate for many smaller losses.

Why is stability positive?

Stable performance reduces the risk of large losses that can drag down the portfolio's overall growth. Volatility, on the other hand, can lead to emotional decisions and unnecessary trades that, in the long run, reduce returns. A stable portfolio develops more predictably, making it easier to stick to the strategy and not get carried away by the market's short-term fluctuations.

Volatility can also cause us to sell holdings at the wrong time, leading to lower returns than if we had held on to the positions during a more stable development.

Why is high CAGR important?

High CAGR is crucial because it means your portfolio grows faster over time. It's about maximizing the impact of compound interest, where the return on your investment generates additional returns. The higher the CAGR, the greater the difference in the long run.

Examples of how two portfolios are affected by volatility:

Portfolio A (high volatility)

• Year 1: +20%
• Year 2: -15%
• Year 3: +25%
• Year 4: -10%

Portfolio B (low volatility):

• Year 1: +5%
• Year 2: +5%
• Year 3: +5%
• Year 4: +5%

Result:

• Portfolio A (high volatility): Final value: SEK 114,750, CAGR: 3.5%
• Portfolio B (low volatility): Final value: SEK 121,551 CAGR: 5.0%

Interpretation: Although both portfolios have the same average annual return (5%), Portfolio B performs better over time. Portfolio A, with higher volatility, has a lower CAGR and ends up with a lower value. Lower volatility leads to better long-term returns, even if the average return is the same. Downturns have a more negative impact on returns than upturns have a positive impact.

Diversification: The key to independence from the Stockholm Stock Exchange

We know that the Stockholm Stock Exchange is not always the place where trends flourish. That is why we are careful to diversify beyond Sweden's borders. By creating exposure to other markets and sectors, we can benefit from more potential trends.

Whether it's US tech companies, European energy companies or gold ETFs, diversification helps reduce reliance on a single market. Ultimately, it's not the big gains in individual stocks that build wealth – it's the ability to grow steadily over time.

Systematic Strategies: Our Map Through the Noise

It's easy to get carried away by the noise in the market – headlines, social media and various gurus trying to convince us that they know what the future holds. We don't play that game. Our systematic strategies help us make objective and rational decisions, based on data and proven rules.

By following robust strategies and setting aside subjective judgments, we can navigate the market in a way that creates long-term returns – regardless of whether 2024 felt like a snoozefest.

No one knows what 2025 will bring, but if we learn from 2024 and previous years, we can understand the importance of:

• Stick to a strategy.
• Let time do the work.

Final words

Boring years like 2024 lay the foundation for the big gains in the long term. Stable development and a systematic approach create the conditions for a high CAGR, and diversification gives us the freedom to find trends wherever they arise.

So yes, 2024 may have been boring – but it could very well be the year that built your future wealth.

Long-termism pays off! ????