I will, once again, not make any predictions for the year.  At the beginning of last year, most Wall Street strategists incorrectly predicted the S&P would appreciate in value.  No one is good at making predictions.

 

Not making annual predictions is part of my process.  Being prepared for the unpredictable is a key part of making good investment decisions. I favor process over predictions.

 

Last year the NASDAQ index declined by 33%*.  The S&P 500 declined by almost 20%*.  The Bond index declined by roughly 12%**.  Contrast that to what you and I experienced last year.  My personal holdings are very similar to our client’s holdings and my overall holdings were nearly breakeven last year.   Clients with similar holdings to me may have done a little better or a little worse depending on their mix, but no one experienced the decline of the indexes.

 

Anyone invested heavily in the NASDAQ index needs a gain of nearly 50% to get back to the level of the beginning of last year.  By contrast, a portfolio that has declined by 3% only needs a gain of 3.09% to recover.  I had no prediction last year, but our process left us in a position for a easier recovery. 

Focusing on the short term is not part of the process.  Humans have a strong tendency to extrapolate recent experience and ignore the long term.  In the long term, bonds don’t give negative returns.  In the long term, stocks have compounded wealth at nearly 10% per year***.  Right now, I find people are thinking short term while underestimating the future.

 

Rather than make a prediction, I will make the observation that any negative thoughts may prove to be very wrong this year and will certainly be wrong in the long term.  I think our process has your portfolios well positioned going forward, just like they were very well positioned for last year.

 

 

*Calculated from 2021 & 2022 year-end closing values from Refinitiv Thompson One

**Morningstar Bond Index performance provided from Morningstar Research

***The average annualized return since its inception in 1928 thought Dec 31 2021, is 11.82%.  The average annualized return since adopting 500 stocks into the index in 1957 through Dec. 31, 2021, is 11.88%. Calculated from the following data: https://bit.ly/3WLtCl4