Power Up Wealth podcast – episode 8 transcript:
Sharla Jessop 0:00
If 2020 was known as the year of the pandemic, 2021 will be known as the year of economic recovery. I’m Sharla Jessop. Today James Derrick, Chief Investment Strategist and investment expert at Smedley Financial Services, will review what happened in 2021 and compare that with the long-term picture of the market and maybe what to expect in 2022.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James, thank you for joining us today.
James Derrick 0:57
I’m happy to be here.
Sharla Jessop 0:58
James is our Chief Investment Strategist. He holds an MBA from the University of Utah and a Chartered Financial Analyst designation. He’s been managing money with our firm for over two decades, James change and unpredictability headlined 2021. What did you find surprising?
James Derrick 1:15
Well, 2021 was the year when not only the market went up like it did in 2020. But also the economy was recovering. And really like a lot of the movement in the stock market in 2020, was just in anticipation of a better economy. But in 2021, we really saw that. One of the surprising things, though, was that even though that the stock market did really, really well, under the surface, a lot of companies suffered. And because the large companies have the biggest weightings in the indexes, we typically quote, you didn’t see all those red numbers under the surface.
Sharla Jessop 1:50
You know, in your article in Money Moxie, you provided a chart. What did you find interesting about the information when you were researching?
James Derrick 1:59
Well, I put together this table, and I wanted it to be a real easy read. And one of the things that I thought was fascinating is the number of negative days in a year. And it wasn’t because it was unusual. In fact, it was very typical, in terms of, of negative days. There were 108 negative days in the stock market in 2021. And typical is 115 over the last 20 years. So 108 versus 115. I mean, we were right there at normal, but what was interesting to me was just that there are 108 to 115 negative days. And that many days where you might be looking at your account balances and seeing negative, red, bad, maybe you’re even feeling bad about losing money. And it’s completely normal. Hang in there.
Sharla Jessop 2:49
I have to agree. I’m the person who opens the Yahoo first thing in the morning to see what the futures look like. And if there’s red, I can tell you that immediately how I feel versus if there’s green on the chart. And you know, you don’t think about how that might impact you. You know, another thing was the market drops. Tell people about the market drops.
James Derrick 3:08
Well, the stock market did really well as I mentioned, but the greatest drop in the S&P 500 was negative 5%, which is really, really small. And I believe that happened in the month of September. Typically over the last 20 years. And this is typical, even if you went back further, the S&P 500 will lose about 15% at some point during the year. And so negative five last year, negative 15 in a normal year. So it actually was a lot better than normal. But I find the number of negative 15 really, really interesting because I don’t know how many of us are really emotionally prepared for that kind of drop. And yet it’s completely normal. But whenever it happens, we’ll probably feel panic. I mean, even as a professional investor, it can feel a little bit scary. And you have to ask yourself, well, gosh, is the market any riskier after it’s dropped 15% than it was before it dropped 15%. I mean, I could make the argument that it’s not. You know, Warren Buffett said that the stock market is the only market where when things go on sale, people run away. And Walter Deemer is famous for saying when the right moment comes to buy, you won’t want to. And I think that’s really, really true. If we keep a long-term perspective, we’re just much better off.
Sharla Jessop 4:22
I think that’s important. And I liked that fact because when people are looking at a return and or the market and they see that it’s dropped, and it gets maybe to 10% they’re really starting to feel uncomfortable. And I think a lot of that has to do with maybe recency bias where if it’s going down, we think it’s gonna continue. You know, there’s no that’s not going to stop and we don’t rephrase that so that we think, hey, here’s some buying opportunities. The markets are down 10% on average during a year it’s going to drop have a 15% drop. We’re in a point in time where there may be some real opportunities to get in.
James Derrick 4:58
Yes. And we ought to approach it that way. We ought to see risk as not just a four-letter word, but as an opportunity. You know, really, I mean that is where the opportunity comes from. And if things do fall, then it’s an opportunity to buy low. Now, let’s say that, you know, for a lot of people, maybe they’ve already allocated to the stock market, and they don’t want to put any more money in. Well, it doesn’t change the fact though, that it’s still a better bargain out there a better deal than it was previously. And so it’s just a great reason to stick with it.
Sharla Jessop 5:32
Agreed, you know, inflation has been rising rapidly. We’re all feeling the pinch of inflation right. Now, talk to us a little bit about that, in the short term and long term?
James Derrick 5:41
Well, I don’t think it came as a big surprise than inflation became an issue because, you know, the overall US economy is about $25 trillion, give or take. And the government, through the Fed and through the Federal government printed almost $9 trillion. And so this is an enormous amount of money, you know? Some of it was given out to Americans and then other from the Fed was just put into the markets by purchasing mostly bonds. And so all of it ended up in the hands of Americans in some way or another. And so they’re spending and the demand for goods skyrocketed. And the world could not keep up. Add to that some of the shortages from the pandemic. And it was really quite difficult for the world to adapt. And that brought inflation up to about 7% by year-end. And it’s a big number. It’s a big enough number that the Federal Reserve feels like they have to do something and they spent most of the year saying that it was transitory, temporary, you know, just hang on, it won’t be a real problem. And I think they might actually be right. But the problem is, is that it’s stuck around long enough that the Fed feels like they need to do something. And that something is they’re going to stop stimulating the economy by purchasing bonds. I mean, believe it or not, like in January and February, they’re still stimulating the economy, which is amazing, because it’s doing really quite well. So they’re going to end that. And they’re going to raise interest rates. And we don’t know how much. And I think that that’s got stock investors and bond investors a little bit nervous. And we’ve seen a little bit more volatility already in the year, and there’s probably more to come. Getting back to your original question on inflation, I mean, where it goes is going to be critical to investors. So I’m keeping an eye on it.
Sharla Jessop 7:29
Do you think it will extinguish any opportunity for growth in the market?
James Derrick 7:32
I don’t think so. Because I anticipate that inflation will come down a bit. I think that the Federal Reserve is probably correct, that it’s temporary. It may have lasted longer than they thought. But I still believe it’ll come back down. It may not go as low as two, two and a half percent where it was before. But I still think it’ll come down from the 7%. I think we’ll end the year lower than we started the year. And I think that’ll give the Federal Reserve more flexibility. They won’t have to be super aggressive in raising interest rates and stock investors are going to like that to. A fed that is raising rates, but patiently.
Sharla Jessop 8:10
So what do you expect for 2022?
James Derrick 8:13
It’s a great question. 2022, we’ve already seen quite a bit of volatility, I think it’s going to continue. And I want to add that I think it’s completely normal. I mean, we’re going to experience a year with highs and lows. And it’s okay. It’s completely normal. I think I think, though, that those who may act with too much greed in the market, may get punished. Those who act with too much fear may get punished. But I think those who can ride through the storm and stay level headed, they’re going to be okay,
Sharla Jessop 8:45
Anything can happen quickly. And having a long-term perspective is going to make all the difference in success in a financial plan.
James Derrick 8:52
Yes. Things are happening so fast right now. And keeping a long-term perspective is actually really hard for people to do. For everybody. But if you can do it, then you’ve got an edge. You’ve got something that other people struggle to do. And I think that one of the best ways to do it. One way to do it is don’t look at your statement every single day. Sharla you don’t need to be on Yahoo every day, or 20 times a day looking at your account balance. It’s okay. Like, if we can remember to keep a long-term perspective. Remember what the market does over the long term. That’ll help us not overreact to what it’s doing in the short term. And that’ll enable us to take those long-term averages like you see in the newsletter and get them in hope, you know, hopefully, get some of those positive numbers into our accounts by keeping our long-term perspective.
Sharla Jessop 9:47
James, that’s valuable advice. Thank you so much for joining us.
James Derrick 9:51
Thank you.
Shane Thomas 9:51
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly, as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. o Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Lorayne B. Taylor, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
