FIVE THINGS YOU SHOULD KNOW
INSIGHTS for INVESTORS
Get Your Mind Right
Making money isn’t free. Seriously. Two of the biggest “prices to be paid” by investors are patience (i.e., don’t chase) and experiencing volatility (i.e., don’t panic).
I highlight this, because outside of March 2020’s blip, investors have been spoiled by a mostly historically smooth ride post GFC, including a couple of years that are among the least volatile years in history (2017 & 2021).
Here we are, down less than 2% YTD (in itself an absurd timeline given its week 1!) and the media has already struck up the band about the next impending doom. I saw a headline the other day, “Fed Minutes Spark Stock Collapse.” Really, over a couple percentage points? Are you falling for it? Hopefully not.
This is the time of year that many investors try to look back at 2020 to deduce what lies ahead. If it was a below average year, they wring their hands with worry wondering if their plan is broken and if it was an above average year, many fall prey to chasing last year’s winners or alternatively worrying about “market tops.”
None of this is constructive.
What can/should one focus on?
These take more effort and more historical context but will serve to keep you on track far better than diving into the common articles/topics found in most of financial media.
What Lies Ahead in 2022?
Tis the season for people to make their “calls” for 2022. The truth is nobody knows, but you can probability weight some potential scenarios.
Our job as investors is to use such information to be prepared NOT to predict. That might mean being emotionally prepared to weather the inevitable storms that pass through, or mentally prepared to execute on a game plan that should be decided in advance, not concocted while emotions are running high.
Let’s begin by remembering that there are always potential reasons for market volatility, and today is no different. As JPMorgan pointed out, “the largest sources of risk are hawkish central banks, slowing growth in China, and global COVID restrictions, but most of these threats are already priced in. Even if they aren’t quite priced in the chances of them really materializing is minimal.” It’s noteworthy that JPMorgan remains bullish on equities.
The chart below is one of my all-time favorites that I seek to share at least a couple times a year because it highlights market drawdowns, even steep ones, are common and yet rarely result in the prolonged bear markets so many investors live in perpetual fear of. Despite an average intra-year decline of 14%, over 75% of years have still resulted in positive returns.
So, what are the biggest questions facing markets as we enter 2022?
The one that seems to have the markets attention most at this point is the relationship around inflation and the Fed’s next steps. That fear was triggered a bit this week after minutes were released which included statements that rate hikes could begin before tapering had concluded. However, while policy hawks such as St. Louis Fed’s Bullard reiterated hikes could be on the table sooner rather than later, he also said the Fed may engage in a “passive runoff” of their balance sheet which would be more “dovish” than current market expectations.
Most analysts are focusing on a few key factors to watch as we enter 2022:
Using the common energy found with a new year to focus on your personal finances is a great idea, assuming that focus is put on the right areas. Let go of the common pressure to predict what lies ahead and use that time and energy to plan for those things you can control.
As always, we are here to help.
Have a great weekend,
Tim and team at TEN Capital