šŸ’¹šŸ“Š2022 Insiders & Fun Investment Observations

The start of the year is always inundated with predictions of all sorts and fortune-telling. Iā€™m tired of resolutions. Why donā€™t we make intentions and realistic small yet mighty goals instead?

Since the stock market is uncontrollable, itā€™s pointless to try to predict everything. Instead, letā€™s plan for it!

Fortune-telling seems pretty fitting since investing is all about growing our fortunes. In the investment world, it is prudent for investors to forecast future expectations in the markets since their money is on the line after all.

Getting into the habit of predicting how the economic environment will pan out will put you on the right path towards real fortune.

Since the retail meme trading frenzy back in January 2021, there seem to have emerged two distinct investors. ā€œStash and donā€™t look at itā€ or ā€œdo it all day, everyday controllingā€ kind of investor. Although as with most things in life, the more time you spend on something, the better you get at it, with investing, itā€™s an entirely different playing field.

No matter your track record or historical performance, thereā€™s no guarantee. Luck is a massive player here so the least you can do is try to understand the uncertainty in the markets and whether or not capital preservation and increasing your cash holdings, reducing your equity exposure, and minimizing risk especially in this uncertain environment will be necessary for 2022.

Itā€™s also not a bad idea to check up with your brokerage, portfolio manager, or your investment platform a few times a year to evaluate how high your annual expense ratios or advisory fees have gotten. Undoubtedly this year will be more treacherous. Not only in outperforming the broader markets and producing double-digit returns but being able to navigate the uncertainty and resist the urge to give up entirely. With 3 years of above-average returns, you can tell yourself thereā€™s no hope or convince yourself thereā€™s opportunity on the horizon. Although safe-haven assets such as fixed-income may not be attractive now nor are equities on the horizon with overpriced valuations and frothiness, thereā€™s a lot to look forward to starting with your home!

With U.S. equities overvalued at their highest point since the dot-com bubble and corporate valuations stressed-tested, keeping at least 5ā€“15% of your net worth in cash to take advantage of a decline in corporate evaluations and earnings as an attractive opportunity. Per the WSJā€™s message, ā€œthe best investing virtue is diligence. Donā€™t look towards the new year, look to decades down the line.ā€ Youā€™ll thank me later.

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Safe Ball

Although Wall Streetā€™s forecasts arenā€™t historically known to be, ā€˜on the moneyā€™, having a rough estimate or ballpark for the major indexes and returns from each fund are crucial to keep in the back of your mind.Ā 

The longer you invest, the likelier your net worth is higher which will allow you more of a buffer to feel comfortable within your portfolio. Thereā€™s nothing more freeing than knowing you are putting your money to work and it is working in the right place while doing little to no work. Welcome to portfolio, eventual passive income.

If you didnā€™t get a chance to read my forecast for 2022, you can do so here. Without observing 2022 return estimates from major financial institutions and buy-side firms while writing my report, afterward, I found out my estimate was in a similar range as top analysts and portfolio managers expected. Without spoiling it, all Iā€™ll say is that this year will be definitely be harder to navigate as inflation, supply chain constraints will eventually cool, and the Fed is removing the punch-bowl, a.k.a liquidity pumped into credit markets to thaw. If you havenā€™t noticed already, the 10-year Treasury note is up to 1.8%. This is its highest since early 2020 indicating slipping bond prices and higher yields. The December inflation report just came in at 7%, its highest in 40 years since 1982! The first week and a half of trading for the year also slumped with Big Tech and small-caps within the Nasdaq, and Russell losing their momentum. Although inflation means negative real rates, keeping cash on hand is still important as rising yields enter the picture once the Fed reduces its balance sheet.

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Top Concerns

Never fight the Fed for a clear reason.

It is the greatest indicator and has the most influence over where the markets are headed. With their hawkish measures, I believe inflation, supply chain woes, and the labor shortage will abate. With unemployment at stubbornly low levels around 3.9%, this is the fastest recovery weā€™ve seen but is it healthy? No in terms of our wallets but for our portfolios and unrealized gains that we would rather not cash out of, yes! When it comes to variants, specifically Omicron, WHO, health officials, and medical scientists predict cases will hit an inflection point and spike in the coming days to weeks. This will certainly help artificially inflate asset prices some more which means it will be difficult to see what is under vs overvalued as almost all asset classes are extremely frothy at this point.

Besides the Fedā€™s tapering and rate hikes set at 0.15ā€“0.25% 3ā€“4x this year, several banks predict, other notable events happening this year include the midterm elections. Politics is intertwined in the markets whether we like it or not but in the end, markets move on and return the same on an annualized basis regardless of the presidential party. The geopolitical threat with Russia and China is something to keep note of as well. With Russia, thereā€™s increasing pressure with Ukraine, and Putin vs Biden ongoing tensions. With China, well, everything is always shaky in terms of relations with human rights violations, nuclear threats, U.S. boycotts against the Winter Olympics, and control over Vietnam. Last but not least, the debt crisis and default of Evergrande last year. Market analysts predict their default will not inflict havoc on the U.S. economy and instead will continue to harm Chinese private developers and commodity-heavy producing countries such as Brazil and Australia.

Anytime the Fed makes a drastic move such as curbing monetary stimulus and increasing borrowing rates, the market rallies and reacts extensively. Last week the Nasdaq reached its lowest levels since January 2020 and the 10-year Treasury yield rose 22 basis points within a few months! The markets are currently embracing a reversal in policy from the market maker himself, Powell.

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Crystal Clear

I believe the market is in a period of accelerated economic growth and going through a multi-generational expansion. U.S. public equities will not slow down. They are relentless and have been able to outperform inflation for the longest time. I believe there will be a brief period of 5ā€“15% corrections, possibly 2ā€“3 during the year and the S&P 500 returns a mere 5% this year to close at ~5,000. As inflation lingers on, this means negative real interest rates will be persistent for the foreseeable future. The real interest rate is the nominal rate (not adjusted for inflation) minus inflation. Hence, the inflation-adjusted number. Fixed-income investments are currently losing value so itā€™s better to have a lighter capital preservation strategy right now and take on more debt later in the coming months once the Fed initiates itsĀ .25% rate hike in Mach, June, September, and December.

Fruitful Opportunities

Although I am a 21-year-old and have a long-run way, I believe 5%-15% of my net worth should always be in liquid securities or hard cash. Cash and liquid equivalents include treasury securities with various maturities, money-market funds, CDs, money-market funds, US Savings bonds, and or corporate bonds. The rest of my portfolio is stashed in equities, fixed-income, and real estate-REITS. REITS are attractive since 90%+ of their income must be paid out in dividends. This allows them to pay very little income tax.

Alternatives are always on the side as well to stay diversified and have a hedge against inflation. Speaking of them, Iā€™m planning on increasing exposure into venture capital and debt, crowdfunding through Crowdstreet and Fundraise real estate multi-property family home investments, art through Masterworks, and farmland through Farmrise.

Females are more conservative by nature as we tend to live longer. Nationally, we carry less debt, own higher savings, have higher portfolio balances, and generate higher returns by an average of 7%. But no one is competing.

Art, collectibles, and NFTS signal scarcity and value which Iā€™m bullish on more than crypto, dogecoin, ethereum, and the rest of the coins that fluctuate based on media mogulā€™s tweets not on real pieces of work or value outside of speculation and gamification. Increasing my exposure into tangible physical real estate to act as a hedge against inflation, offers passive income, buy utility, and be a natural diversifier is valuable. Real estate is one of the few investments that you can depreciate (expenses through tax-write-offs) as it appreciates! You canā€™t deduct your expenses off of your personal gross income but you can for your business. I urge everyone to set up some kind of side-hustle in the new year. Donā€™t be plagued by the IRS any longer for your hard work.

I believe real estate will outperform the equity markets by roughly 18% as it continues to heat up now in coastal cities that were ravaged by the pandemic. With soaring rents, inflation, and healthier savings in 2020ā€“2021, Americans continue to search for properties they can lease out and build equity in. Just remember, donā€™t spend more than 2ā€“30% of your net worth on a primary residence. This clearly seems unrealistic for most. No wonder millions went into foreclosure and bankruptcy during the Housing Crisis with all their life savings tied up in 1 property. Learn from the past. Itā€™s hard to do, but essential since it unfortunately repeats until we change!!

With rate hikes, financial firms will benefit from rising interest rates and larger loans. The financial sectorā€™s 4Q earnings will be posted on Friday. Today I read overdraft fees will be lowered by 80% from $30 to $10. According to the CFPB, major banks make about $15.5 billion per year on these charges. This reminds me of one of the most successful add-on products, AirPods. Overdraft fees and AirPods could be their own separate entities and still be considered large-cap companies listed on the exchange! This is how powerful mini-business units are inside behemoths!

Energy was the highest performing sector of 2021 and I believe alongside oil it will continue to boom. A concern on the horizon I see for these businesses is proving corporate value not just equity in terms of the environment. ESG, fighting climate change, reducing greenhouse gases, a zero-emission future, and COP26 are powerful signals that executives and BOD must consider in an industry that is notorious for destroying the planet.

Players such as Exxon Mobil, Chevron, and Devon Energy recorded double-digit gains in 2021 as there were record amounts of passenger cars sold due to fear of the transmission of the virus on public transportation, residents used more energy in their home(s), and Biden tapped into oil reserves in November to reduce sky-high prices.

Iā€™m diving more into health care this year as weā€™re witnessing a dispersion of health care communication systems and technology for preventative care. Since 2020, pharmaceuticals have crushed expectations and healthcare is an emerging and vital space as it literally saves lives. Now tens of thousands of those who donā€™t have the means or time to visit an in-person doctor, are doing it through telehealth apps. Health care is a $4 trillion dollar industry and it definitely isnā€™t slowing down. Vaccines are the most prominent and vital innovation of our lifetime.

As we head into a digital world through the landscape of Web 3.0 with the emergence of AI, VR, digital infrastructure, supply chain management, blockchain, databases, metaverse, the cloud, and a focus on security and privacy, it will be fascinating to uncover how these digital assets are poised to help transform our lives FOR THE BETTER in this ecosystem. Although Iā€™m wary about the Oculusā€™ use and the Zuckerverse as it makes me feel lethargic just thinking about it, as a student concentrating in Fintech, itā€™s exhilarating to observe the trajectory of these disruptive technologies.

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Company Centered Predictions 2022

Although Iā€™m a FinTech enthusiast and wouldnā€™t mind getting an Oculus just to try out next Christmas, I believe the Zuckerverse will fail. No -one needs to do physical tasks through another screen. We need to reduce our screen time. Arenā€™t we all burnout enough? Donā€™t only blame it on social media. Blame it on the screen! Sure, you may enjoy playing Roblox or working out with your Mirror with your futuristic trainer from across the globe, but other than that, I believe all of real-life SHOULD NOT be placed on a screen. If I want to go on a roller coaster or a concert, I will go there when I can. No metaverse in sight. Itā€™s worth the wait than contributing to Zuckā€™s pockets.

Something else on my mind are certain companies I predicted would get crushed in 2021 due to hybrid lifestyles, pent-up demand out of lockdowns, and executive leadership changes. These comapnies include, Twitter, Pinterest, Peloton, and Zoom.

Are they still popular, growing, and useful? Absolutely, but their valuations, price-points, internal conflicts, changes, and supply-chain problems have built up and customers to investors are finally taking notice.

Most of these ā€˜at-homeā€™ stocks plummeted this year with their valuations slashed in half due to slow growth, pent-up demand for real-life again after taxes (Peloton + Zoom), faulty marketing plugs, and safety concerns (Peloton), and failed $45 billion acquisition of Pinterest from PYPL. Twitter is trading at levels lower than when it first debuted as a public company as its CEO + founder, Jack Dorsey eventually realized managing two large-cap companies, Square, now formally Block, and Twitter wasnā€™t such a good idea.

Peloton which is priced roughly three quarters below its Dec 2020 high dealt with various supply-chain constraints, wrong and painfully slow deliveries, faulty marketing plugs, and concerning future prospects as people are waiting to get out again off the bike and into social, packed, and sweaty gyms.

I have a feeling Peloton and or Zoom might get acquired by Apple with a massive cash cushion or by Pinterest.

Last but not least our favorite, Zoom. It was down 50% this year. Reminds me of Robinhood, down 80% this year. The good times are over friends. Zoom might go vertical or horizontal. Its valuation is as much as Salesforce which is unrealistic with just 1 core yet 1 product.

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Green DirtyĀ Thumb

My generation, Gen Zers are highly focused on their carbon footprint, racial equity, and making sure their dollars are rewarding the world not just their paychecks.

Iā€™m quite surprised younger investors are this generous with their limited earnings since tuition is only rising above inflation 2ā€“3 fold each year and millennials are the most indebted generation having endured 2 recessions in their lifetime. Thankfully the massive generational inheritance shy of $3 trillion from their Baby Boomer grandparents and or parents will serve them well. As long as they donā€™t spend it, they can live off of it for the rest of their lives. But even then, I would urge them to get a job so they donā€™t become miserable. You only discover that once you have nothing to do. No one is worthless. Everyone has potential.

Only until it stops raining money and executives cash out of their stock options do they realize their destruction on fossil fuels, greenhouse gases, and climate change. Up until then, its the younger generations that need to focus on this low-value add field. One day we wonā€™t need to sacrifice return for a better earth. That day is nearing.

I believe ESG will become more pronounced and popular as the years go by. The Vanguard ESG ETF has been around since the early 2000s but with an added emphasis on a warming climate, pollution, EV craze, and zero-emission future, the time is of the essence today!

ESG makes up over one-third of private capital under management with an estimated $3.1 trillion. Now comes the awareness part. Gen Zersā€™ got this. They are influencing ambassadors after all. No change is made overnight. Confidence and patience with meaningful returns will seal the deal to help improve the environment for the next generation and years to come.

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Space Tourism

No one should need or want to spend $200ā€“600k on an 8-minute ticket to land on the orbit of the earth. There are enough problems on this planet already. Donā€™t catapult away from them.

These billionaires are locked in their own heads in their own distorted reality. By giving away less than 1% of their net worth, they can eradicate poverty, help solve world hunger, provide adequate housing, lift people into good schools and out from the streets. The list goes on with how many impactful improvements they can make without feeling a penny. Literally. They are that rich. Instead, they seem selfish and are focused on a marketing publicity stunt for their new ventures. Virgin Galactic really needs a name change first. At least Amazon is the second-largest employer behind Walmart and created 1.3 million jobs while amassing exorbitant wealth.

Bonus Picks

Iā€™m eager to keep up with Cros, Shake Shack, and Krispy Kreme this year. Cros had a stellar year surging 64% in 2021 reaching a valuation of $460 million in cash and equivalents compared to $135 million as of December 2020. Crocs Inc. (NYSE: CROX) reported 73% year-over-year revenue growth in the third quarter of 2021, with record revenue of $626 million up from the $361 million it brought in last year. With the rise of influencing and freelancing, celebrity endorsements and publicity helped fuel this classic king. Cros and cash are kings! Live the frugal stealth wealth remote attire with comfy crocs.

As a lifelong New Yorker, although we have an abundance of healthy alternatives and plant-meet products on every street corner, nothing compares to classics such as Shake Shack and Krispy Kreme. I have yet to visit either! Yes. Donā€™t @ me. With at-home food delivery and comfort foods on the rise since lockdowns began, I believe thereā€™s no slowing down for these two classic chains especially as January 17th, National Ditch Your Resolution Day is coming up! We all sabotage ourselves eventually. Hopefully not our finances though. Stay diligent all the way. Thereā€™s less work that way in the end.

As the legendary economist, John Maynard Keynes stated, ā€œthe markets can remain irrational longer than you can remain solvent.ā€ Stay diversified, cautious, and donā€™t have too much fun as market conditions fluctuate and do their thing. Never get too complacent, donā€™t confuse brains with a bull market, and as a friendly reminder, never ever fight the Fed.

Now get your burger, donuts, and Cros on to start the New Year! Thank goodness the Peloton is in the basement. Intense people do intense things, right?