2021 recap: Lessons (Re) Learned

2021 recap: Lessons (Re) Learned

December 21, 2021

2021 recap: Lessons (Re) Learned

Each year the stock market brings new events, challenges, and opportunities, but the underlying themes and fundamentals are often very similar to lessons past. As the saying goes, history doesn’t repeat itself, but it does rhyme. Here are some of the important investing lessons I (re) learned this year and that you can apply to your investing future:

  • Asset allocation and time are the ultimate forms of risk mitigation. Many investors (inaccurately) define stock market risk as short-term price movements, but this is the worst and potentially most ineffective definition. As I’ve written about previously, there are many forms of investing risk like taking on leverage, being overly concentrated, overpaying for securities, etc. (the ultimate form of risk in anything in life being not knowing what you are doing). But short-term stock fluctuations should never be seen as a form of risk if you have matched your assets with your time horizon (cash/short term bonds for funds needed in the next year or 2, stocks for funds not needed 3-5+ years). If you have set aside cash you need for the near term, then any day-to-day price fluctuations are meaningless to you. Proper asset allocation and time are the ultimate means to not have to pay attention to, let alone worry about, short-term price movements which are both inevitable and unpredictable.

  • Predicting short-term price movements is not possible. Even if you had a crystal ball telling you exactly what would happen in the world outside of the stock market – what the Fed Chair would say, what payroll numbers would be, etc. - you still couldn’t predict near-term stock price movements (how many times in 2021 did some economic data come out and the markets reacted in the exact opposite direction as would have been expected?). As Buffett has stated, he spends around 5 minutes each year on macro-economic data, and that is 5 minutes too many. Focus on the things that matter and that you can control – asset allocation, the quality of your holdings, your expenditures/budget, etc. – and leave getting entirely wrong economic predictions and the market’s reaction thereof to the so called ‘experts’.

  • As the great Peter Lynch said, more money is lost (opportunity cost, shorting the market, etc.) anticipating bad events and market drops, than in the declines themselves. Again, if you had a crystal ball in the beginning of 2021 and saw all the bad headlines on myriad fronts – health, politics, economics, etc. – you would have sold all your stocks and run for the hills, which would have been the worst thing you could have done for your long-term holdings. Those who are sure that doomsday is coming – and that they can time getting in and out perfectly - invariably sell, watch the market go up and up and up (as it does over time), then when it drops 5 or 10%, they declare victory, saying ‘I told you so’ even though they missed the 20% up only to get ‘right’ the 5% down. The reality is that there always have been and always will be temporary market declines, but you won’t be able to time them, and you will lose far more in being out of the market than you will make up for missing the occasional but brief declines. The statistics on how much returns decrease by missing even a few of the best up days in the market are astonishing. According to one study, if you missed just 10 of the best days during a 15-year period, your returns dropped by nearly 70%. Sometimes the best form of action is inaction, which can be accomplished if you have worked with a prudent and disciplined Financial Advisor to help you create and execute a plan rather than react to day-to-day market movements.

  • As Gandhi once said, it is health which is real wealth, not pieces of silver or gold. Many people work hard, accumulate money (or are on the path to doing so), but rather than investing in themselves by dedicating time to their body, mind, and soul, they spend countless hours staring at stock quotes for no other reason than it is a form of addiction. In the vast majority of cases, the less you focus on your portfolio, the better your results will be – both in terms of economic outcomes, but more importantly in other areas of your life that really matter: your health, your family, your work, your hobbies, your passions, etc. Working with a Financial Advisor can help you establish a clear set of goals and a plan to get there. Knowing you have someone dedicated to reviewing your progress regularly – and talking you off the proverbial ledge if and when you are tempted to take action inconsistent with your best long-term financial interests - can be priceless.

I bought my first stock in 1984, got a couple undergraduate degrees in Economics, worked on Wall Street, got my MBA, and became a professional money manager shortly thereafter. I have seen and experienced it all – from Black Monday in 1987, to the terrorist events of 9/11, to the Great Recession, to the pandemic of 2020, and everything in between. Every bad headline, every prediction, every market movement... Amidst the incredible progress we have made on so many fronts as a society, there has been negative headline after negative headline (largely promoted by the media which gets paid to attract viewers who are more likely to tune in when someone is screaming, ‘THE END IS NEAR!’ rather than, ‘just invest your money for the long term and you’ll be fine’) that would make anyone think stocks would never go up. Yet, over time they do, with the DOW going from under 1,000 to over 36,000 during my investing career.

2022 will surely bring more dire headlines (with some legitimately bad news – I am not trying to underplay the challenges we face as a society, but rather to articulate what you should – or shouldn’t do about them – vis a vis your portfolio), most unexpected (and therefore not predictable). What will assuredly persist, however, is that high quality blue chip companies will continue to figure out ways to adjust, to make money during rain or shine, to pay some of that money out to their shareholders through dividends and stock buy backs (both of which will likely set records in 2022 after having set records in 2021), and reward shareholders who are able to ignore – or at least look past – today’s headlines for a brighter future, which inevitably comes.

We are always here to assist you with setting forth and executing a plan specific to your circumstances and needs. It is an honor and pleasure to serve people around the country with the important and valuable undertaking of optimizing their investing and financial lives. Here is to a healthy and prosperous new year.


Article by Scott Kyle