When you consider the ravenous nature of inflation, investing your surplus income becomes a necessity. The year 2021 has been full of mixed market performance as well as periods when all hope seemed lost and a mix of moments where everything indicated hope of a brighter tomorrow.
Overall, global benchmark indices indicate that 2021 was a great year with the SP500 index gaining 26.63% year-to-date. In the UK, the FTSE100 index has gained 11.89% year-to-date (YTD), while the German DAX30 index has gained 14.37% YTD. This is an indication that most global stocks gained through 2021.
This leads us to the first investment lesson of 2021. If you didn’t own or buy any stocks at the beginning of the year, then you have no dividends or profits to enjoy as we close the year. To benefit from the growth of the most promising global brands, you need to invest money in their stock to earn from their growth.
The major business trends of the year 2021 have had a direct impact on the performance of global stocks. This varies from work-from-home arrangements to covid-19 vaccinations, cloud computing adoption, global supply-chain bottlenecks, global semiconductor shortage, online shopping trends, and virtual interfaces. This leads to our second investment lesson of 2021.
The investor that was able to observe the trends and narrow down the information to actionable intel had a better chance of investing in stocks that outperformed the overall benchmark index. This involves investing their monies in industries such as semiconductor stocks like Applied Materials Inc. which has made 78.33% YTD as a result of higher demand and the global semiconductor shortage that hiked prices.
They could have also invested in retail consumer stocks such as Crocs Inc. that sold a massive number of Crocs as Americans rushed to shopping malls when President Biden eased covid-19 restrictions. Crocs Inc. is up 171.46% YTD.
While investing in 2022, your ability to read business and societal trends will be instrumental in determining the stocks you pick hence the returns you get.
Individually, we all felt the heat of cost-push inflation as rising global energy prices led to higher prices of consumer products. There was a commodities super-cycle in 2021 as the prices of most commodities rallied as much as 90% for tin, 60% for oil, and lumber which rallied 138% before erasing gains.
Economic challenges like this will always come up and they represent an investment opportunity in some global financial market asset. This leads to our third investment lesson of 2021.
Whenever there is pressure in life generally coming out of a black swan event like the covid-19 delta variant or an unfortunate market cycle like the commodities cycle of 2021, investors don’t worry. Instead, they start researching to find the hidden gems in the market that are set to benefit from the challenge.
In 2021, the investors who understood the commodities cycle invested in stock such as Chevron is up 39% YTD. In the case of the Delta variant, investors understood that it would take more vaccinations which implied higher demand for the most preferred vaccine. This led to a 149.53% rally in Moderna shares.
On 6th January 2021, we witnessed the US Capitol insurrection after the November 2020 election. On 20th January, Joe Biden was inaugurated as US president. On 31st October 2021, Japan elected Fumio Kishida as their new Prime minister and on Wednesday this week, Olaf Scholz was inaugurated and Germany’s new Chancellor.
In all these political events that happened in 2021, we experienced a slight increase in market volatility, but the trends stayed on course. Political events can cause some volatility in the financial markets for a period but underlying fundamental factors will eventually take over and guide the markets further.
In our fourth investment lesson of 2021, we focus on political events such as elections and petitions of the election outcome. If you are investing for any period that is over one year in stock, a focus on these events may be misguided unless the incumbent leader has very outrageous policies. Instead, investors used the short-term selloff to buy more stocks at discounted prices.
The last investment lesson of 2021 will draw insight from 2020 through to 2021. If you focus on Tesla, the global leader in electric vehicle manufacturing among other products, you will notice that the company made 695% returns in 2020 while it has made 42.33% in 2021 so far. Another asset to draw insight from is Ark Invest’s ARK Innovation ETF (ARKK) which raked in 152.52% in 2020, and then lost 19.45% in 2021 so far.
This clearly shows that past performance does not imply or guarantee future performance. When selecting stocks to trade in 2022, avoid looking at 2021 performance. Instead, focus on the business you are investing in. Look at the business’ sales, debt, moat, market share, products, industry, and leadership. These features will tell you more about the position of the business and potential future performance.
As you enjoy your Christmas holidays, try and engage the people around you in investing challenges, ideas, and most importantly, share these lessons.
Rufas Kamau, Research & Markets Analyst Scope Markets Kenya