Penta Strategies 2022 January

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Penta Strategies 2022 January

Dear friends

In January, investors were again put to a very tough test.

Inflation reached 5% in Europe and as much as 7% in the U.S.A., the highest level since 1982. Accordingly, the U.S. Federal Reserve announced several interest rate hikes for 2022, which put particular pressure on technology and growth stocks, which are sensitive to such interest rate changes.

Added to this were rising geopolitical tensions with North Korea’s renewed missile launch in the Japanese Sea and a growing potential for conflict on the Ukrainian border.

Predictably, investors once again turned away from risk assets, causing tech stocks and cryptocurrencies to suffer their biggest declines since the pandemic began in March 2020. The Nasdaq fell more than 15% from its peak and officially entered correction territory.

As volatility and correlation increased across all asset classes, there was no place to hide. Even gold and bond prices fluctuated with no discernible trend and failed to live up to their potential as inflation hedges.

By the end of January, everything was in the red: S&P 500 -5.3%, MSCI World Index -5.3%, 20-year bonds -4.0%, gold -1.7% and Bitcoin -16.9%.

Our strategies could not escape the market headwinds and unfortunately also suffered losses with Universal ending -3.1%, Progressive -5.9% and CryptoMax -8.7%.

Such a hit to your portfolio can feel like a knife stabbing you in the heart. You might be tempted to take your hard-earned money out of the market to re-enter when things are more favorable again.

My personal opinion on this: Don’t.

But what if the market continues to fall? The truth is that no one knows what will happen next, but we know from history that it pays to stay invested.

According to a study by J.P. Morgan Asset Management, it’s almost impossible to time the market. If you missed just 10 of the best days in the stock market over the last 20 years (!), your total return would be down more than 50%. If you sell out during a correction, not only will you realize your losses, but you will most likely miss the recovery as well, since 7 of those 10 best days were within two weeks of the 10 worst days….

Even though the current sell-off feels nerve-wracking, such price drops of 10-20% are quite common. The recent Nasdaq correction is the 66th since 1971, meaning we average 1-2 such events per year.

But more importantly, we all know that stock prices don’t stay down forever after that. Historically, the Nasdaq broke even within about three months and averaged +15% a year later. 

Long-term successful investors therefore have a habit of being patient and carefully evaluating opportunities to buy quality assets at discount prices.  The legendary Warren Buffet famously said: “Be greedy when others are fearful, and fearful when others are greedy.”

Although the stock market has had a bumpy start to 2022, try to remember that the Nasdaq is still trading over 100% above its March 2020 lows….

Stay happy, healthy and wealthy!

Omar

 

 

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