Thursday, January 6, 2022

The Year Ahead


Happy new year. The pandemic is not over but as an eternal optimist (you have to be one if you want to be an investment guide), I see the world better prepared now. The latest mutations of covid19 seem to be less severe.

To say that stock markets surprised most by delivering 25.4% in Canada and  29.4% in the US , is an understatement. No one expected this. Healthcare in Canada (mainly marijuana stocks which we have never owned) was the only down group by -18%. Financials, mainly banks were up by a whopping 37%. This was the year investors who took major risk did spectacularly well. We were in the middle of the pack. As always we underperform when they go nuts in the markets and outperform when things are normal.

From an investor’s viewpoint, what really changed is the true value of money. It has become clear that central banks can print and throw trillions of dollars onto a problem. And the pandemic is a problem, a big one. While some fret on how we would pay for all this, we forget that our tax rates used to be much higher not too far in the past. Yes, we will be paying more in taxes. Look how major singers like Bruce Springsteen and billionaires like Elon Musk have taken capital gains before they get hit by higher taxes.

 As an individual or family, we have limited resources to throw money at the problem, as a collective there is no such limit. Last year saw a record number of new billionaires while that may make some envious, I find it comforting that there is money out there which can come in handy to help us through this period. Mistakes during the great depression and the Spanish flu have taught us what not to do and that is to restrict spending. Whatever you may feel about politics, I think the central banks have done the right thing. Would it come back to bite us? Sure, but most drugs have side effects.

The bigger question is, where to next? No one really knows, gurus have wildly different forecasts from higher interest rates to a recession. Some views are quite contradictory. What continues to make sense is that “essential services” have expanded from health care, groceries and staples to the internet, telecommunications, and education. Of course, banking, utilities and real estate are as essential if not more. These are the sectors I focus on when investing. Most of them pay dividends as well which seem to be stable and rising as time passes even in the pandemic.

Is the market topping out i.e., is it about to go down? Market action during the first week of January says, yes. Last year’s tech darlings including the much loved and hyped ARK investments have had a big haircut, some dropping more than 50% in a short period. First let me assure you, we are not in any of those hyped stocks but as you may remember something called collateral damage. Stocks that shouldn’t drop will also drop if the so-called generals of the market are taken down. So, let’s brace ourselves for quite a volatile period ahead.

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