With nine days remaining of 2021, I’m here to review 2021. It was a year of highs, lows — and a veritable tanker-load of volatility. Here are my takeaways from year two of Covid-19, from an investing perspective.
Investing in US stocks was great
The US S&P 500 index is up almost a quarter (+23.8%) this calendar year, excluding dividends. But after three years of strong rises, US stock valuations look stretched to me. Nevertheless, most of my family investments remain in American stocks, largely because of TINA (There Is No Alternative).
Bond investors got burned
For the first time in 50 years, US stocks went up, but bond prices fell. Thus, 2021 was the year when the 40-year bull market in bonds halted. And with inflation surging and interest rates forecast to rise, will bonds disappoint again in 2022? Fortunately, I missed this fall, because I’ve owned no bonds for several years.
Investing in Bitcoin beat gold
The price of gold — one traditional hedge against inflation — fell by 5% in 2021. Meanwhile, leading cryptocurrency Bitcoin had another great year, soaring by 69.4% in 2021. But Bitcoin was also hugely volatile this year. BTC’s price ranged from below $30,000 to almost $70,000 and now hovers around $49,000. I own no cryptocurrencies, so I’ve lost out as a ‘no-coiner’.
Tesla was briefly worth over $1.2trn
As I write, Tesla stock has gained a third (+33%) in 2021. But it went way higher earlier in the year, peaking at $1,243.49 on 4 November, valuing Elon Musk’s company at around $1.24trn. Seven weeks later, Tesla is now worth $305bn less. Wow. As a TSLA sceptic, I don’t own this volatile stock, yet I love Tesla’s electric cars.
Speaking of popular shares, there was some crazy price action in meme stocks. This showed how large herds of retail investors can push stock prices around and even bring down venerable hedge funds.
Bear in a China shop
It was a bad year for investing in Chinese stocks, particularly in the tech, education and property sectors. Government crackdowns led to stock declines of up to 95% among some US-listed Chinese shares. A notable casualty was vastly indebted property developer China Evergrande, whose shares and bonds have plunged in value. More recently, several other Chinese real-estate companies have also defaulted on their foreign debts. Yikes.
Archegos taught us three investing lessons
Family office Archegos Capital Management — run by ex-hedge fund manager Bill Hwang — imploded spectacularly in late March. It turned out that Archegos was killed by three classic investing problems: concentration risk, leverage, and illiquidity. Here are my three lessons from this failure.
Inflation will make investing harder in 2022
Across the globe, inflation returned with a vengeance. US Consumer Price Index inflation was 6.8% in the year to end-November, a 30-year high. UK inflation surged to 5.1% over the same period, a 10-year high. It’s now clear that major central banks will raise interest rates in 2022 to curb rising prices and wages. Already, the Bank of England raised its base rate from 0.1% to 0.25% this month, the first rise in three years.
My investing in 2022
Finally, what are my plans for my investments in 2022? I’m going to stick to my long-term plan, which is to buy cheap value stocks based on underlying fundamentals. I’m drawn to shares trading on low earnings ratings, high earnings yields and market-beating cash dividends. For me, the best place to look is in the FTSE 100.