Best Investing Advice For 2021? Ignore Predictions!

Instead, take a close look at what the market is telling you

2020? No thank you, I’ve had enough of that.

But it’s 2021 now. So, let’s turn the page, as humans and as investors. And, let’s look forward to being productive investors in 2021.

There was a lot that happened in 2020 that can help a conscious investor out in the new year. It starts with separating what is important from what is, shall we say, “fluff.”

Fluff Stuff

First, as the headline says, ignore predictions about what the market will do in 2021. That’s hard to do, since predictions are about as plentiful as face masks and hand sanitizer right about now.

Forecasting what the stock or bond market will do, or making educated guesses about which stocks will flourish this year, may be fun for some. But there is something they miss, and it is very important.

The markets don’t care what the calendar says. Investors do, but trying to confine any type of investment analysis to a specific time frame is very difficult. Sure, you can talk in terms of what you think looks relatively attractive over weeks instead of years. But you should resist trying to make investing a calendar year contest. That’s true at the start of any year, and at any point during the year.

Investing is a continuous process, and every investment cycle occurs on its own time, not the time we would like it to. I see too many people trying to force things to happen in a specific time frame. “How do you think we will do this year” and “will the first half of the year be better than the second half” are part of a disturbing trend. They are “game-i-fying” investing. Don’t do it.

2021 and beyond: rules to invest by

We have covered what not to do. As for the investing attitude you should take into 2021, just look around you:

• FOMO (fear of missing out) is abundant
• Bond yields are pathetically low
• The stock market’s gains in 2020 were primarily by a small number of very well-known companies. Nearly half of the Dow Jones Industrials’ 30 stocks were down for the full year. And about 1 of every 5 Dow stocks were down at least 10%. Heck, the “Value” portion of the S&P 500 was about flat for the year.
• The U.S. Dollar’s value versus a trade-weighted basket of foreign currencies (a.k.a. ”the Dollar Index”) has been falling steadily for most of the year. Maybe Bitcoin is about to replace the Dollar as the world’s reserve currency? OK, just kidding.

Getting acquainted…with your future

This is a nice time to acquaint yourself with what a contrarian investment mindset is all about. That does not mean you shun what worked last year, or blindly plow your assets into what didn’t work last year.

I am talking about the old Rudyard Kipling quote, which, when adapted to investing today, sounds something like this: if you can keep your head while those around you are speculating at a historic level, you might just identify some great long-term investments. And, they won’t be the “obvious” ones.

Where to look?

I spent a lot of time during the holiday season vigorously analyzing a list of my favorite companies (to buy those stocks) and investment segments (to invest in through ETFs). While I can’t discuss much in terms of specific names in this space, I can tell you what some of the common features I am looking for.

First, they have been market laggards. Not only last year, but for longer than that. They are also businesses and market segments that have clear competitive advantages over their peers. Warren Buffett refers to these as companies with “wide moats.”

I am looking around the globe, since the combination of lagging non-U.S. markets and the suddenly sagging Dollar is intriguing. Frankly, anything that is not considered “Large Cap Growth” is a good starting point. That asset segment has been so dominant, history implies that any further gains will come with much higher risk of disappointment than we’ve seen in a decade or longer.

Anyone? Anyone? Bueller?

For many investors, commodities and currencies are a sort of “investment of last resort.” They are an afterthought compared to traditional stock and bond investments. But as the movie character Ferris Bueller once said, “if you don’t stop and look around once in a while, you could miss it.” He was talking about life. I am talking about wealth. And in 2021 and beyond, that is a great place to start your portfolio strategy.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.

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