Happy New Year! I hope everyone managed to enjoy some rest and rejuvenation over the holidays! I was just reading that if you need a holiday to “recharge” from work, it is a sign of burnout, and you should consider a career change. It feels like the sort of stock new age advice that goes along with “just do what makes you happy,” “speak your truth,” and “routine stifles creativity.” So much “self-help, self-love” advice floating around at the beginning of the year in the hopes of shaping new year’s resolutions. It sounds good, has enough elements of the truth to attract some devotees, but it doesn’t hold water for me! If someone tells me that two plus two is five, they are not speaking “their truth”; they are simply wrong. And if they insist on their right to believe that, it just becomes annoying! A routine doesn’t mean killing all spontaneity, but it functions as a framework for productivity and a bulwark against wastefulness. You don’t grow muscles by working them out every day; there need to be rest days to balance out the reps for optimum results. Fields need to be rotated and rested periodically when growing crops (or so I am told), or they grow fallow, but they degenerate and become useless if they are left idle too long. There is currently a whole field of study on finding the right balance between work and rest. Too much responsibility is exhausting and overwhelming, but too little undermines energy and can be deflating. Balance is the key to so many things in life, but balanced advice never makes headlines. The extreme viewpoints are what attract attention and soak up media coverage.
Bit deflating to be starting at the beginning of 2022 with more COVID restrictions than last year. So discouraging to be entering year 3 of the pandemic with no end in sight. It feels like we were singing Bonnie Henry’s praises a very long time ago! Different this year in that a year ago, the advice for curbing the virus was similar between experts and across the globe. Current headlines these days will leave you very confused in that data is being interpreted so differently expert to expert, country to country. At one end, you have China, which is still locking down anyone with a positive COVID test in isolation in a hospital for almost a month, in juxtaposition to Florida, which is entirely open and maskless. That state’s messaging being that Omicron is somewhere between a cold and mild flu, nothing to be feared anymore; it is simply going to speed up mass immunity the more people catch it.
Some are still treating it as a pandemic, while others are already considering Covid to be endemic. It is no wonder markets have been so volatile! They dropped like a rock in November and the first half of December, as Omicron first hit, before finishing the year quite strongly on the belief that it is not as bad as was feared. Despite Omicron worries, all major indices finished positive for the last quarter of the year (except for emerging markets).
Jordan and I did manage to get our trip to England. I am still not quite sure if we were lucky or unlucky with its timing. Everything would have been fully open if we had gone a week earlier. If it had been a week later, I would have canceled our travel plans! We did get to see five soccer games (which was the purpose of the trip), we did get to tour Old Trafford, Manchester United’s home stadium (the team we support). But we didn’t get to see Manchester United play at the said stadium as they were the one game we had that got canceled out because too many players had COVID!
At the end of the day, though, it was a fantastic experience with Jordan. We managed to avoid catching COVID, despite 100,000+ cases a day in the UK at the time. Nobody seemed to care, worry about, or follow any rules around COVID, from our experience in London. It was quite the paradigm shift from the Canadian approach! I managed to save my marriage by safely making it back home with the boy before Christmas, and I have an excuse to return!
A couple of things struck me on the trip.
One that is self-evident, but important that we don’t take for granted, is that the world is becoming a much smaller place because of technology.
The last time I was in London, we made like locals and scrambled around the city by tube, spent a lot of time figuring out exchange rates, the best way to change our dollars for pounds, and canvassing locals for restaurant suggestions. This time around, we realized pretty early that Uber was just as cheap and far more convenient than the tube for getting around, and drivers were happy to play tour guide for us. I could use Apple pay straight off my phone for most purchases, and Open Table works just as easily for booking a restaurant in London as it does here!
I think this is especially worth remembering as technology stocks are getting hammered right now. Inflationary concerns and worries about interest rate hikes have investors fleeing Nasdaq and more leveraged IT stocks. The concern is that their fantastic growth rate will not be sustainable in a higher interest rate environment. I would concur, but in my opinion, the adaptability and speed of growth in the tech industry are simply unmatched. Markets for good ideas are global rather than local. While 50% growth rates are not sustainable, I will be legitimately surprised if the IT sector is not going to continue to outpace the broad-based market over the next decade. As such, the pullback in IT right now has me excited about being able to opportunistically add to tech positions or pick up some good companies at much more attractive valuations than we have seen in a long while!
The second thing that hit home with me was pointed out to me by my son, Jordan, as we toured the different pitches. We went to six different stadiums that ranged from brand new to over 100 years old. The smallest ground had a seating capacity of 5,000 fans; the largest sat 86,000. Some were in the city; some were in the suburbs; one was in the country. Some of them were sold out and humming with energy; some of them had empty seats and felt a bit lackluster. They were each vastly and obviously different from each other. Jordan’s observation was that he had watched numerous games on TV and streaming services from each one of the clubs, and he had no idea how different they all were until we were physically there. The camera angles and media coverage of games at each one of these venues were all carefully crafted to make it seem like the 86,000 seat Old Trafford Stadium of Manchester United (one of the most valuable sports franchises in the world) was pretty much the same as the Brentford ground – a newly promoted premier club whose stadium only seats 16,000 and sits below the underpass of a freeway on the outskirts of London.
It is easy to get sucked in by a slick Instagram ad for Polestar or Lucid or some other start-up EV company and think they will be able to effortlessly compete with a Toyota or Ford (or use whatever sector or industry you want!). The reality is that they are vastly different. One company has hundreds of billions in sales revenue, while another counts in millions. While everyone loves a good David vs. Goliath story, there is an excessive amount of risk to be betting on David consistently! One would be an investment; the other is pure speculation. They may both have a part of your portfolio, but you had better understand in which category your assets need to be categorized if you don’t want to be surprised!
So important these days to make sure you invest in quality businesses that you want to partner with for the long term, rather than to fall for short-term headlines or social media hype. Especially important right now when trading is in a lemming like, sector-to-sector rotational pattern, rather than investors taking the time to differentiate one “growth” company from another. They can look very similar at a superficial first look, but it is critical to take the time to separate significance from puerile, value from cheap, opportunity from trap, and it is harder than ever to spot the difference!
The late Nobel prize-winning economist, Paul Samuelson, is credited with saying that “investing, when done properly, shouldn’t be exciting, it should be like watching paint dry. You should save your excitement for the casinos”.
These last few years are testing that aphorism! As I wrote in my previous commentary, the amount of risk needed today to generate a similar return to a decade ago is up exponentially.
The top-performing asset class in 2022 was bitcoin.
That makes 10 of the last 12 years it has topped the charts. Why wouldn’t we just buy bitcoin, you ask? The two years it didn’t top the charts it finished dead last and finished with a -70% and -50% return respectively! You’d need a constitution of iron to be comfortable enough to watch your portfolio drop 70% and not bail on an asset, especially one where there is no guarantee that it will bounce.
Want stability? Cash is the lowest risk investment you can have. It has been in the bottom three of investments for 9 of the last 19 years. Last year, the worst-performing asset class was another low-risk investment – long-term bonds. Safety right now is a synonym for a dilutive asset. It may not drop in value, but it is sure losing purchasing power year over year, especially as inflation ramps up!
Just as we should ignore the catch-all life hack advice that is being dumped into our social media feeds from influencers, we need to ignore the extreme viewpoints espoused by financial headlines. As we work through our client reviews this quarter, I am not trying to interpret tea leaves. It is a bit of a mug’s game to try and correctly decipher inflation numbers, economic data, geopolitics, and COVID trajectory to position a portfolio in a manner that will give a maximum return for the year. We do the best we can, but there are too many moving parts, and unquantifiable and unknowable data, to do anything other than guess.
What we will do is make sure we have the balance right for where you are in the investment journey. Somewhere between cash and bitcoin! The investment philosophy and discipline that goes into finding that sweet spot between risk and reward best suited for each of you is where my energy will be going this year!
I’m happy to review your individual circumstances and portfolio and talk about the challenges and opportunities that are on hand right now. If you’d like to set up a zoom meeting or phone call, you can email Carissa at ckennedy@worldsourcesecurities.net.
Here’s hoping we find our balance in 2022. That right spot between being safe and living our lives, productivity and rest, risk and reward, so that this year brings us both meaning and happiness!
Stay safe, stay positive, stay disciplined!
Jeremy
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Thank you for this professional and thorough comment about the market.
I am just curious that, as the adage, “do not fight the Fed” goes, do you think our profolio should ever have a put option contract for etf that track 10+ year US. Treasury like TLT?
Is it a good hedging strategy to buy a put option contract for etf like QQQ right now? The contract mentioned above would expire in a year.
Or, it is best to just hold company that generate outstanding amount of cash and have low capital expenditures?
Jeremy is dedicated to helping families, business owners & professionals achieve financial security, and peace of mind through sound “values based” financial planning. Jeremy would be happy to sit down with you to review your financial plan and provide you with recommendations to help achieve your goals.
Thank you for this professional and thorough comment about the market.
I am just curious that, as the adage, “do not fight the Fed” goes, do you think our profolio should ever have a put option contract for etf that track 10+ year US. Treasury like TLT?
Is it a good hedging strategy to buy a put option contract for etf like QQQ right now? The contract mentioned above would expire in a year.
Or, it is best to just hold company that generate outstanding amount of cash and have low capital expenditures?
Thanks