CAPITAL IDEAS: The top financial research of 2021
The thing about investing is that it is much easier to look back than it is to look forward. I’ll take the easy way out and talk about what was interesting in 2021.
The Investopedia site has more than 20 million monthly readers. As you have probably concluded from the name of the website, it draws a more investment-centric crowd than Google. Investopedia has identified the most popular investment terms for 2021. I’ll list them and give my take on why they were so popular. Did any of them convince you last year?
- Capital gains tax: Investors last year were trying to determine whether they should sell assets and pay taxes on earnings in 2021. They feared the White House would raise taxes in 2022. Income brackets for earnings rates capital in 2022 are larger than in 2021. However, the 2021 bill to increase the rates of appreciation of wealthy Americans has not become law.
- Fiat money: The US dollar is an example of fiat currency. Fiat currency is government-issued currency that is not backed by a physical commodity, such as gold, but rather the government that issued it. I guess a lot of people have researched ‘fiat money’ because cryptocurrency investors argue that crypto is more secure than fiat money. This claim is a bunch of nonsense. Cryptocurrencies are more “fiat” than fiat money. The US government, for example, is supported by the rule of law, a functioning democracy, an infrastructure, an education system, corporate profits, property rights, and more. The value of a crypto coin is based solely on what the next person will pay. this.
- Inflation: This one is obvious – everything is more expensive than a year ago, and we want to know why. Spoiler alert: the reason is too much money for too little merchandise.
- HODL is a term derived from the misspelling of “hold”. He’s referring to the âdiamond handâ strategies of cryptocurrency investors who are willing to hold on to, uh, their investments despite the craziest volatility. Credit when credit is due; I don’t think I could handle seemingly constant 50% crashes. This new era of investors has guts that I wish I had. Fun Fact: âHODLâ came into being in 2013 with an article on an online Bitcoin forum when a drunk user explained that Bitcoin traders had better âhockâ their coin.
- Child tax credit: Under the American Rescue Plan Act, enhanced child tax credit checks were mailed through December 2021. While the Build Back Better plan stagnates, so do the plans for add more money to monthly child tax credits.
- ESG Filtering standards (environmental, social and governance) have become more popular with socially conscious investors. I predict this term will be popular in 2022 as the Securities and Exchange Commission (SEC) crack down on investment management firms claiming to be ESG-focused but have no control to validate their claims.
- Dogecoin: The frequency of searches has likely increased due to the tweet from Tesla CEO Elon Musk. Dogecoin is a ‘joke’ cryptocurrency that sort of attracts investment dollars. It’s a “joke” with a market cap of $ 30 billion; I don’t know if the joke is on us or if it’s a sign of a bubble. Maybe both?
- TVN: Copy and paste alert: Non-fungible tokens are crypto assets on the blockchain with unique identifying codes and metadata that distinguish them from one another. While I had to copy and paste from Investopedia to do the definition justice, I actually understand the value of NFTs, as opposed to various cryptocurrencies. Well, maybe “understanding” is a little generous. I understand the value of TVN as much as I know the value of traditional art. But then again, I saw multi-million dollar exhibits at the Museum of Modern Art in New York City that I thought were stray heaps of trash. So the concept, I understand – the value, maybe a little less.
- Short interest is the number of stocks that investors have sold short. In other words, it is the amount that investors bet on the fall in the price of a stock. Short-term interest searches likely increased because followers of the Reddit “Wall Street Bets” page often searched for companies with large short-term interests. Redditors then stacked in those actions to squeeze short holders, defying the big wigs of Wall Street on behalf of the little guy. This resulted in stocks of 2021 memes like Game Stop, AMC Entertainment, and BlackBerry.
- Conservatory: The #FreeBritney movement sparked the search for âconservativeâ. The father of popstar Britney Spears was granted guardianship of his daughter and her estate in 2008. In February 2021, The New York Times published a television documentary titled Framing Britney Spears, which drew general public attention to the guardianship affair.
I’m surprised that no term related to the Great Resignation is on the list. In 2020, 36.3 million people left their jobs and 38.6 million from January 2021 to October 2021 (most recent cumulative data). It seemed worthy of further investigation.
The financial outlook for 2021
In last week’s column, I painted a picture of what 2022 could look like for the economy and the markets. Let’s add some details. Last week I claimed that the stock market has about a two-in-three chance of being higher in 2022, but the gains are likely to be slim. I want to revise that prognosis a bit – I think the first 10 months of 2022 will be flat to negative for the stock market.
2022 is a year of midterm elections, and the stock market exhibits unique characteristics during these years. The stock market typically winds through October during the mid-term years, sometimes dipping slightly to the negative. If investors can get through those first 10 months, there is a silver lining. Since 1950, the one-year average return after a midterm election has exceeded 15%, about double the average for all other years.
Over the past five decades, the president’s party has lost around 30 House of Representatives seats and four Senate seats in the midterm elections. The president’s approval rating typically drops after he takes office, motivating the party that is not in power to step out and vote to seek change. Since seat losses are common, it is not uncommon for stock prices to hold on and drift slightly higher until April of the year of the midterm election. Then, as the saying goes, “sell in May and go”.
The stock market doesn’t like uncertainty, and there isn’t much uncertainty for the first four months of a year at its midpoint. As we get closer to Election Day – around May – the market begins to react to the uncertainty of possible policy changes. This is when the market loses momentum and pulls back. In the weeks leading up to the election, the polls tightened and uncertainty has already been built in. The stock market then generally performs well in November and December. Despite the good results, the midterm election years are more moderate than the other years. Since 1942, the S&P 500 has recorded an average gain of 6% in the midterm election years, a few percentage points lower than the average calendar year.
Allen Harris is the owner of Berkshire Money Management in Dalton, Mass., managing investments of over $ 500 million. Unless specifically identified as original research or data collection, some or all of the data cited is attributable to third party sources. Unless otherwise indicated, all references to specific securities or investments are for illustration purposes only. The clients of the Advisor may or may not hold the securities that are the subject of their portfolios. The Advisor makes no representation that any of the securities mentioned have been or will be profitable. Full disclosures. Direct requests: email@example.com.