That hopefully will not hold true. Last year was a tough one for pretty much everyone on the planet. You had your positives: Markets were broadly higher. You had your negatives: You really need me to go over this? The good news is that it is over and what will 2022 bring us?
I like a prediction, now and then, just like everyone else. However, let’s face it though, no one really has any better insight into what the coming year will bring. You can hear people drone on and on about the markets and I would say that less than half of them are right any given year. They use all sorts of analytical tools to come up with predictions but truthfully, it’s a crapshoot. Maybe worse. I think Vegas odds are a little better than getting it right predicting market outcomes.
As far as investing is concerned, it is more about your time frame than it is about predicting what the market will do from year to year. If you are well invested and you are looking a longer time frame than three years, it doesn’t matter all that much what happens in 2022 because when you need your money at some point in the future, it will be there and then some.
Investing in stocks still makes more sense than other asset class over time. Take that one to the bank my friends because anyone that tells you otherwise is full of it.
There obviously are caveats to that statement and the most important one is in the statement itself, “If you are well invested”. That is what it all boils down to, being properly invested.
Looking back at 2021 you really didn’t need to be a genius to be properly invested. You could have built a portfolio of some great stocks or funds, mixed in some fixed income type investments and kept as little cash as possible and you would have done just fine. As I explained last year, I didn’t follow that because, as usual, I thought I picked the right time to get out and held to it. Admitting one’s mistakes doesn’t get you any wealthier, learning from them does.
This year will be more challenging because some of the core underpinnings of that rising market will be dialed back or eliminated. Rising interest rates and it’s effect on corporate earnings will be example number one. Even though corporate America is hugely profitable and will continue to be so for a long time, the thought that some external factor might slow the roll of these earnings juggernauts might have enough impact of investor’s mentality that there might be a pullback. If you are used to seeing a company you have invested in beat it’s earning estimates every quarter and then it doesn’t, you might pull back from that investment. Thats psychology of the markets. It doesn’t have to make sense, it just has to work.
The steady hand will just look at earnings misses and shrug and go back to Instagram and post bread pictures. It’s the computer generated algos that will react to those misses and reallocate cash quickly. That is your investment scenario in a nutshell. Investors invest, traders trade. So negative earnings momentum shake out traders while investors and their long term time horizon stay invested. In the bigger picture, this is a very good thing. Market volatility will continue and business reporters will make it sound like this is all new but it isn’t.
I will still go with my gut and say that we should see some sort of larger correction this year (meaning, not just one sector) and that will be a good thing. The investor doesn’t need to fear a corrective move because his horizon is much further out. The individuals that have a directed component of their investments should rejoice as well because as the year goes on, they will dollar cost average at lower price points and their long term returns will improve.
As you well know by now, I think the economy is doing just fine and even though corporate America has taken advantage of this inflationary period, I think things will return to a more stabilized place as far as prices and employment are concerned. Just in time for the Mid-Terms!
Funny how that happens
Great way for me to start the new year.....agreeing with You!