Lessons from the best-performing stock market this year

Turkey’s stock market sits on top so far this year. From December 31, 2021 through September 14, 2022, Turkey’s Borsa Istanbul was up more than 85%. Compare that to a lacklustre -1.5% for the UK, -7% for Canada, -9% for Australia, and the downright dismal -17% in the U.S.

The increase in Turkey’s stock market has been underpinned by a 7.6% increase in GDP year-over-year for the second quarter.

Ready to invest?

Maybe not. Unemployment in Turkey sits at 10.6%, double or triple that of most developed-world economies. Consumer prices have soared more than 80% over the past year. And the country is pinned under the dictatorial control of Recep Tayyip Erdoğan, who, at a bare minimum, has some extremely misguided economic ideas.

Indeed, Erdoğan demonstrates some of the worst qualities of a leader, be it the head of a country, or the CEO of a company.

Notably, he’s…

Often treated the country as his personal piggy bank. Rather than a servant of the state, Erdoğan seems to see the situation, at least at times, the other way around. This includes the construction of the Presidential Complex in Turkey, a 1,100-room palace that, depending on the estimate you go with, cost anywhere from US$350 million to US$1.2 billion. When the building was unveiled, The Washington Post wrote that “The White House would be a tiny wing”.

Making big bets on ideas that are ludicrous. The raging inflation in Turkey has been stoked by the highly-misguided idea from the President that lower interest rates, rather than higher, would be best to fight rising prices. Economic orthodoxy is the opposite. When interest rates are increased, it slows the flow of money and dampens economic activity, putting pressure on rising prices. And while there are good reasons to doubt some areas of economic orthodoxy, this is not one of them. Erdoğan’s oddball idea has taken containable inflation in the country and turned it into a major problem.

Doubling down, rather than admitting an error. Most everyone with even a basic understanding of economics felt Erdoğan’s approach was wrong-headed before day 1. But with inflation closing fast on triple digits, the mistake should now be fairly obvious. Instead of changing course, though, he introduced a policy that would backstop Turkish depositors, and therefore the currency, via the country’s treasury. This continued the misguided economic approach, while additionally shifting risk onto the Turkish taxpayer.

And still, the Turkish stock market is the best performing major market this year.

This isn’t an anomaly. There are many instances where inadvisable actions lead to positive results. Lotteries are mostly ways to set your money on fire. But somebody wins. Drunk driving is among the dumbest things a person can do. Yet intoxicated drivers do make it home without injury to themselves or others. And smoking and eating mostly red meat is not the ticket to good health. Yet there are lifelong smokers who eat steak at every breakfast who live to a ripe old age.

You don’t have to take wise actions to get to a good outcome. That’s how statistics work. Unless something is an absolute law of physics, there will be a range of outcomes. “Bad” actions can end up with “good” outcomes. And vice versa.

But if you want to reach ideal ends more often than not, focus on process: consistently take the actions that are most likely to lead to the outcome you want.

If you want to keep more of your money, don’t play the lotto. You can get to your ends of increasing wealth much more reliably by doing boring things like saving money.

If you want to stay alive and out of jail, don’t drive drunk. With just a little planning and coordination, you can have the fun you want without endangering anyone.

If you want to live long, don’t smoke and eat a well-balanced diet. Strike a balance in your diet and you may find that you enjoy your occasional steak even more. (The smoking I’d suggest simply avoiding).

If you want to be a successful investor, diversify and invest for the long term. Don’t put all of your money into one stock in hopes that it’ll make you rich in 12 months. Investing that verges on gambling may lead to the occasional win, and a good cocktail-party story to tell. But it’s a low-probability path to growing your portfolio.

And whatever you do, don’t expect economic success from the leader who hasn’t grasped Econ 101.