It’s that time of year again.
We’d once again like to thank all of you for the support and engagement in another challenging year. We assumed we may have been able to break away from Covid this year, but it wasn’t to be the case. It almost seems like 2021 has been an extension of 2020! Thankfully in Tasmania we have had better fortune than most throughout 2021. Freedom from Covid throughout most of the year, along with freedom of movement within the state.
We can only hope the newest variant of Covid is less severe, will be blunted by vaccines and 2022 will see everyone get back to life as normal as possible.
What did we learn in 2021?
We always look for things that challenge our beliefs, but markets worked as we expected in 2021, which is like they do every other year. They price in news according to how significant it is at the time, then they move on.
Markets don’t like surprises. Therefore, if “risk is what you don’t see”, that helps to explain sharemarkets for 2021. As usual there were many forecasts of doom, bubbles, and crashes ahead, but they didn’t eventuate, even with new variants of Covid appearing. Covid was seen as already being with us, so new variants were an extension of what we already were living with. They weren’t seen as a major risk.
If something totally unexpected occurs, then that will be what reprices sharemarkets.
Awareness and Self Care
We’re rehashing this story from last year and make no apologies for doing so. A conversation recently occurred with a client who wanted to increase his insurance because he was doing more work around his garden and would be using a ladder. In his mid-60’s, he’d noticed he wasn’t quite as nimble on the ladder as he used to be so increased insurance would be prudent.
His adviser said he could help him with the insurance, but would rather not, suggesting the more “prudent” measure would be not getting on the ladder in the first place and sticking to the work he could do on the ground.
From last year:
On more than one occasion in recent client meetings, it has been relayed to us that one partner (we won’t mention the gender) decided to pull out the ladder and start chopping bushes or trees. On these occasions, the amateur arborists both had near misses. They took a tumble which thankfully only ended with very minor injuries and dented pride.
We raise this because we also help clients with their insurance. Last year we had a client who also took his chances up a ladder cleaning gutters. It didn’t end so well. Down he tumbled. Cracked vertebrae. Ongoing pain dulled with painkillers. Insurance claim. Still not back to full functionality. As advocates of insurance, we’re glad he was covered, but we wish he didn’t have to make the claim. And we know he thinks the same. Much better to not fall from a ladder in the first place!
The client, who lives in an east coast capital city, recently relayed more about his accident day to us. The thing that really stuck out was what he found when he arrived at the hospital. He wasn’t the only one who’d fallen from a ladder that day. There were four other men who’d also had big falls! All with serious neck or back injuries, some also had other bone breaks and bodily trauma. And we will note, it’s not always just middle aged or older men. The most badly injured person on this day was in his early 20’s. He had an unstable spine fracture and was extremely lucky not to be paralysed.
There might be a temptation to clean gutters or trim trees over the holidays, but maybe just wait, be safe, and hire the professionals to do it.
More than two years on, the client who fell from the ladder has said we can relay as a warning he’s still not fully functional, still in pain, and still being supported by his insurance. Proving insurance is important, but you really don’t want to have to call on it.
What’s ahead in 2022?
We certainly can’t tell you that.
If the market could talk and you asked the market what it will do in 2022, it would tell you it honestly doesn’t know where it will go from one day to the next. You have to remain patient instead of chasing or panicking.
Everyone wishes they were in the hot funds or stocks ahead of time. When that doesn’t happen, to compensate for their lack of prescience, investors instead arrive on the scene late and hope history will repeat itself. To highlight this, just last week Amy Arnott, an analyst with Morningstar in the US, wrote an article called ARKK: An Object Lesson in How Not To Invest.
Arnott focused on the ARKK Innovation ETF, a fund that has been among the top 10 performing U.S. funds over the past five years with a 41.3 per cent average annual return. Fantastic for the investors who were there five years ago. However, the majority of investors in ARKK Innovation were Johnny Come Latelys chasing the higher returns of the initial years, only to see performance drop off.
“Most of the returns came when fewer shareholders were around to benefit,” Ms. Arnott wrote.
When the fund really shot the lights out with an 87.4% return in 2017, the average size of the fund was $116 million, or it had $116 million in investors’ money it was managing. What do great returns do? Attract money wanting more of those great returns. By June 2021 the fund had ballooned to $25.5 billion, and all those extra billions were chasing those old returns. Since June the fund has fallen 29%.
Ms. Arnott used monthly market capitalization data to estimate the average return for investors in the fund. The majority of investors arrived after the strong returns, and just before a hefty sell-off. Arnott calculated the average investor in ARKK Innovation saw a 12% decline from November 30, 2020, to the end of November this year. Over the same 12-month period the fund is down 4.4%.
Not chasing performance is basic stuff, but some investors just can’t help themselves.
Our Best of 2021
Greenlights & Redlights: The acting careers of Matthew McConaughey and Nicolas Cage took big turns over the last decade; their finances played a significant reason why.
Purpose over Details: People can get tied up in the intricate details of retirement planning while forgetting one of the biggest details.
Gambling, Speculating & Investing: The lines have seemingly never been more blurred, so what’s the difference between the three?
Client Alpha: Much focus falls on the value of financial advice, but being able to accept and act on financial advice is often overlooked and will be a vital skill in the years ahead.
The Rich & The Lure of Alternatives: Exotic investments look exciting and exclusive, but investors need to be realistic about who gets the cream in these spaces.
Wade Vs. Plunge: The eternal investment question – “do I invest my money all at once or do I invest smaller amounts at predetermined intervals?”
Other interesting stories to read over the holidays
‘The Silicon Valley of turf’: how the UK’s pursuit of the perfect pitch changed football: If you enjoy tending to your lawn, consider how much thinking and development goes into the modern football pitch.
What We Lost When Gannett Came to Town: The media has its shortcomings, but local newspapers serve an important purpose.
The American Addiction to Speeding: Driving is a lot like investing, we tend to overestimate our abilities.
How to Know What You Really Want: Figuring out what influences us can help us understand to what we truly desire in life.