The Capitalist Investor - Episode 107

Goodbye 2021; this past year was a whirlwind of low expectations. The beginning wasn’t looking so hot and we predicted that the S&P 500 was going to close at a rough 9 percent return. But we got spoiled and saw it close at around 27 percent gains. Now that things are looking good, what’s to come in 2022? This week, Derek “Diamond Hands D” Gabrielsen and Luke “Cool Hand Luke” Lloyd are joined by Tony “Tony the Tiger” Zabiegala to talk about being more realistic in 2022. This new year needs to be the one where fundamentals start to matter in the market again. We don’t have a crystal ball but we do have supporting trends, data and historical patterns that we can use to predict 2022’s outcome. In Episode #107 of “The Capitalist Investor,” Derek, Luke and Tony take a walk through 2021’s performance and rifle through different investing alternatives: real estate, crypto, NFTs and gold to predict how each area will perform in the year ahead of us.

Outline of this Episode

  • [2:15] How will the S&P 500 perform in 2022?
  • [11:30] Just real quick: bonds
  • [12:50] Real estate will cool off, but still be hot
  • [16:25] Crypto needs to be more user friendly to climb
  • [29:55] Can 2022 be the golden year for gold again?

Bear or Bull market aside –– 2022 is due for a correction

Over the past three years, we’ve seen the S&P 500 make gains between 20 and 30 percent despite the lows the Covid-19 pandemic has brought along. But what’s to come in the future? Will the market’s performance continue its high streaks or will things get worse? We’re not being pessimistic with 2022 but realistic. With the unremitting inflation crisis and other issues –– it’s likely the market is going to take a hit in this first quarter.

If more Covid-19 variations develop, fear is going to spark just like we saw with Omicron’s discovery. Over the last two years, the government has been doing everything it can to keep the economy afloat and propped up. But 2022 needs to be the year where fundamentals start to matter again and we can unwind a bit. Goodbye double digits –– our prediction for 2022 is that the S&P 500 will return mid to high single digits again. A rough first quarter is needed; there needs to be some pull back in order to restore order and bring more money to smaller mid-cap stocks.

No, we don’t think 2022 will necessarily be a bear market where rates are down 20 percent for a two month period or anything, but we think at least a 10 percent dip as a correction is likely. We need a correction in the first quarter, where did the fundamentals go?

In the future we need to rotate out of large cap stocks

Like we mentioned before, about six to eight big name stocks make up 30 percent of the S&P 500 Index. While the S&P was climbing this past month, everything beneath those large-cap stocks were not doing so well. Small and mid-cap names were down around 50 percent but still the market closed on near all-time high levels, why can’t the opposite happen?

There needs to be a rotation out of these big major tech names like Apple, Microsoft, and Google and into more aggressive growth stocks like small and mid-caps. The market will sell off 5-10 percent and everyone will panic, but soon enough, those small or mid-cap stocks will do well.

Large-cap stocks did so well this year because their potential future earnings were high –– but how much higher can they go or last? It may be time to rebalance your portfolio and distance your investments from large-cap stocks.

An alternative we expect to see still doing well next year

With interest rates rising once again, we assume that the real estate stocks will cool off –– but don’t abandon them too fast, it will still be a hot market.

Typically, we see a 4 or 5 percent real estate gain every year, but this year alone we saw 40 percent. It was the best year for real estate equities. But since it was so wildly high, it’s best to expect it to regress back to the mean. We predict that real estate won’t teeter back to 2018 levels but will shrink to low double digits –– which is still promising for a strong portfolio.

Crypto is becoming more uncaged and you don’t want to miss out

Bitcoin and NFTs are every investor’s favorite subjects right now –– if not favorite, then most buzzing. There are just so many coins out there –– the internet is filled with digital tokens and it’s like the wild west.

Although Bitcoin took a bit of a hit at the 2021’s close, it was once up 62 percent at the end of the year. When the market is up, Bitcoin’s stock mirrors it. If we predict that the S&P 500 returns at a high single digit at the end of 2022 like roughly 8.5 percent, then Bitcoin [BTC-USD] and its competitors will return slightly higher –– maybe 15 or 20 percent.

The biggest issue with cryptocurrencies like Bitcoin and Ethereum comes down to their utility –– there needs to be more ways to use it and for people to spend it. And some companies are figuring that out. Visa –– one of America’s largest financial services is evolving with crypto and creating ways for users to use their cryptocurrencies to convert and spend their money. Once crypto and digital tokens become easier to spend, they’re going to launch.

We’re still at the beginning of this crypto trend but it’s promising. If you’re doubting them now, wait for them to become more user friendly –– once they do their returns are going to double up. There was once a time where people thought the basic internet was going to fail and look at it now.

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Keep Listening to The Capitalist Investor:
Episode 4:
Coronavirus, Pandemics, and Your Money
Episode 19:
Active vs. Passive Management, Ep #19 
Episode 35:
Gold, Bitcoin, and Crypto as an Investment, Ep #35
Episode 51:
If Cleveland Browns Players Were Stocks, Ep #51
Episode 67:
Concentrated Portfolios vs. Diversified Portfolios – Which Performance Matters? Ep #67
Episode 83:
Sourcing Hidden Gems, Ep #83
Episode 99:
Big Brother, the IRS, Bad Referees, and Crypto, Ep #99
Episode 2:
Is the Stock Market Overvalued?