It’s January the 25th, Tuesday afternoon. It’s been a wild ride. This video will probably go out Wednesday morning. If you’re in tech these last 10 days, you’ve really been spanked, but Tech’s been over value for so long. The market has been hard for everybody. Is it the end of the world or is this just an overdue reset?
Hello, my name’s Paul Carroll, the CEO and founder of Avion Wealth, an elite wealth management firm here in Texas.
On January the sixth, we put out a blog video, cautioning investors that they’re going to take away the punch bowl, that the fed has had enough. And that tech is almost certainly going to get hurt, pretty much chapter and verse. It’s not often you can make a call that precisely.
So the question now, are we going through the great reset in the market? You know, we’ve seen the great reset in the labor markets. We’ve seen so many things change in the last two years. And I would say it’s more of a great rotation. After at least a decade of growth, outperforming value, something that’s out of the normal, when we go into multi decade periods, it looks like value’s back. Value has withstood this correction so much better than growth in the last few weeks. Now, though growth’s getting hit harder, it doesn’t mean we go at a hundred percent value in the future. That long term spread between growth and value at the large cap level is a lot smaller than it used to be, but this is going to be value’s year.
So what are the challenges for 2022? And are we ready? Interest rates are going to go up. They’re going to hit bonds, long bonds especially. Inflation, it will go up before it comes back down. It’s going to hit bonds. It eats away at debts. In fact, if you’ve got a mortgage at two and a half percent, don’t be in a hurry to pay it off, let inflation do the work for you.
This is going to be a year for asset class rotation: buying out of favor, buying what’s been lagging. That could be international. It could be small or midcap. Midcap is actually underperformed historically relative to large cap in these last few years. Could be value. Whatever the asset classes are, it’s time to be favoring out of favor asset classes. They’re the ones that are going to survive this. Lot of people, they just want to get out. But remember you go to cash and experience 8% inflation this year for example, that’s a guaranteed 8% loss for the year. We know from 2008, from 2020. We know that if you’ve got an asset allocation, you stay safely invested, you will recover usually within two to three years from the worst of bear markets.
Now put that in perspective. If you are a hundred percent in stocks at the beginning of the 2000, by the end of 2010, by the end of the decade, you would’ve lost a third of your value, but if you were rebalancing after 2000 and within two, two and a half years, you had recovered. So asset allocation is where it’s at. It’s not sexy in great bull markets. It always feels boring, “Well I underperform the market. I didn’t do as well.” But guess what? Now’s the time to be properly asset allocated.
And I want you to keep one word in mind; fear. F-E-A-R. False Evidence Appears Real. Don’t let fear drive you into a bad decision. Whatever the plan is, stick to it. Show some discipline. There will be winners and losers. The losers will have reacted emotionally. We wish you the best of investing success.
Bloomberg.com, Bloomberg, https://www.bloomberg.com/news/articles/2022-01-25/valuation-history-bursting-bubbles-in-search-of-the-floor?srnd=premium.