OUTLOOK ON 2022
Writing the outlook on the new year forces me every time to read what I wrote LAST year about the one that just finished.
Well I was talking about a deflationary scenario through 2021, with potential gains for the stock market but a lot of uncertainty as there was too much euphoria after the COVID crisis of March 2020… Wow, I was quite correct after all…
2021 closed with yet more bull runs for stock market, fueled by low interest rates and a growing inflation that was much too quickly dismissed as “transitory” by the central banks.
So we now know that inflation is going to stay, and that interest rates are going to rise (maybe soon, at latest in June), so 2022 has an expectation of being less bullish than 2021, potentially could be a disastrous year if things go “south”.
By south I mean inflation gets to rise much higher than expected, forcing central banks to increase interest rates much more quickly and sharply than anticipated. To me this is the key issue in 2022.
Prices of utilities are already booming in Europe, thanks to crappy energetic policies and the newfound “green” spirit which is great but it’s also an inflationary force.
Attracted by great gains I see more and more people moving into the stock market, with little preparation and great expectations on possible returns, to me this is very scary as many investors don’t really realize what are the risks of investing anymore.
Politically speaking there aren’t many appointments in 2022, so I am not expecting major shocks coming from that side.
COVID seems to be “tamed” despite the information overload on several aspects of the pandemic. The feeling I get is that we will move towards a paradigm where COVID is essentially another FLU, and people who are at risk will have to get vaccinated and all.
Not much will change, I will hold to my cash, waiting for opportunities. I know that there is little glory in waiting waiting and never investing, but right now I find it hard to buy. I can buy increasing my average price, but only on very few selected stocks.
If possible I’ll try to reduce positions and consolidate some cash, I am expecting a major correction/crash, so the cash can be handy then. Having said that currently I hold 7% of the PF in cash, it’s not a huge amount…
Dividends: 17.051 Euro
Honestly I cannot complain… Thanks to the backlog of dividends from 2020 that were paid in 2021, plus some other special dividends I managed to grow a massive 20% compared to 2020. This is insane considering that the PF stayed more or less the same and no new cash was added and invested. You can expect growth like that in the first years, as you deploy cash, but when the PF is mature it’s hard to see this growth.
Options: 663 Euro
Considering the usual rolls into next year (hoping sooner or later to come out of these bad trades) and the trial I’ve made with buying calls to enter into stocks at lower prices, the result is not that bad. In reality it was hard to hit 200 euro per month (my target), but if I didn’t have to roll the options I would have made it easily. I do not expect 2022 to be much higher though, unless I decide to use the free cash to do some speculative trades (but then if a crash does happen I won’t have much to invest)
|Share YoY||CNAGR (y)||NYoC||NYoC EUR|
Share YoY (Total return vs 2021)
Not much to say, 15.59% on which I should add an additional 3% due to exchange rate losses, it’s not something I am overly worried about though.
CNAGR (Compound Net Annual Growth Rate)
So the story here is that if you gave me 10000 euro in 2014, your “shares” would now be worth 13.893 Euro, not a huge amount of course, but again, the aim of the portfolio is not to beat the market but to create a stable and reliable flow of dividends.
NYoC (Net Yield on Cost)
This metric is more interesting to me. Between dividends and options the portfolio yielded 3.71% in 2021, NET. This means after taxes (most dividends get double taxation), commissions and general costs. The target was to get 3% so I can consider myself happy, on aggregate the NYoC is still below 3% because it still suffers from the first years when capital was not 100% deployed.
NYoC Absolute (Absolute Net Yield on Cost)
This metric it’s just the absolute amount of the previous percentage. Again I am not a great fan of these numbers, they don’t really say anything about performance, but I had it calculated anyhow so I am adding it here.
Numbers are all positive, positions are gaining value, output from options and dividends are on the rise. What to say? 2021 has been a record year, not just for me, but for many investors.
At the time of writing, given my age, strategy and future prospects, I believe that this portfolio will undergo one or two major financial crisis, and in a way I am preparing for it, not just for superstition, but because I believe that macro fundamentals are pointing towards a period that will be less favorable for stocks.
Here comes the cherry picking strategy vs. index investing, TECHNICALLY, if I did a good job, in a period of crisis the portfolio should work relatively well, if the companies that I’ve chosen are good as I believe they are.
But in reality what matters is that the PF keeps producing increasing dividends, that is what it was made for and that’s the first metric that it’s worth tracking.
Another feature that I love of this type of investing is that in times when “life happens” (like the last three months have been for me, and the next three at least are going to be similar), I can take a pause from the whole investing thing, and nothing major happens. When people compare DGI to other forms of investing I always keep this in mind, I don’t need to follow the markets closely every day, if the setup is correct the portfolio can go ahead without me steering it for some time. Of course it’s better to be at the helm all the time, to take opportunities that are always there, but sometimes it’s really hard to do it.
Now on with 2022, let’s see what we manage to get!