What investment advice do you have going into 2022?

By | May 11, 2022

A few months ago, I was introduced by a mutual friend to a gentleman who has invested in tech stocks.

He inherited some money from his family, and he has made 20–25% per year, for quite a few years, picking his own stocks.

The knowledge he possesses about investing isn’t practically strong, but as he is an IT person, he feels he “knows” some IT and tech stocks.

When we spoke and I calculated the returns, there was one elephant in the room……he hadn’t beaten the Nasdaq, where almost all his stock picks were trading on:

So, yes, he had:

  • Beaten the S&P500 and Dow Jones
  • Beaten almost all stock indexes in the world
  • Done better than the vast majority of investments in the world – not just stocks

Yet he hadn’t beaten the very index almost all his stocks were trading on. He could have simply bought a Nasdaq ETF, held it, and made more money.

That would have been less risky than picking his own stocks, with less stress and so on.

He might also be beating the S&P500, but on a risk-adjusted basis, it is questionable.

What is more, is he was clearly delusional about this – he was surprised to discover the above fact about the Nasdaq.

We see this every time there is a huge bull market in the whole market or just a sector in the market.

It was seen during the 1990s tech bull market. It was seen to a lesser extent in the early-mid 2000s market, where stocks were recovering from the 2000–2002 falls.

We have certainly seen it after the huge market falls of 2020 resulted in a rebound.

People get overconfident and complacent. Others are on the opposite end of the extreme and are always petrified of the markets falling.

Both types of investors usually suffer long-term. The overconfident stock pickers often panic when there is a market crash.

Studies from Vanguard show net sales from their tech funds were highest during 2000, and there were more buyers in 1999 than at any other period.

The fearful investor never gets in. They wait for a market crash and then one eventually happens, and they still don’t get in.

Both types of investors are spending far too much time allowing emotions to guide them, and watching the news.

The point is don’t get too emotional about short-term fluctuations. That is always a relevant piece of advice.

In moments like this, it is more likely to be relevant, as the chance of big moves is higher when interest rates are lower.

Regardless of whether markets fall hard next year, or soar, it is nothing to worry about for the patient long-term investor.

At a recent client event, the Shark Tank (and previously Dragons Den) star Kevin O’Leary admitted that he had tried and failed to time the markets.

If somebody worth an estimated $400million can’t do it, then very few people (if any) can.

It is better to just invest now, rather than setting New Years Resolutions to save/invest more and never do it, and forget about the fluctuations and dips that sometimes happen in the market.

Want to invest in 2022? Reach out today! Expat Wealth Management Specialist

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