The investing world for the first few months of 2021 has shown us quite a lot of what we can expect and how we should prepare. We’ve seen social news website, Reddit, take down hedge funds, another stimulus, vaccines rolling out faster than expected, and stocks bouncing around seemingly every day. We’ve heard a lot of talk about inflation, cryptocurrency, and the global economy. The question is, what do we do with all of this information?
First, quality matters. Stocks like GameStop, AMC, and BlackBerry were suddenly up 200%+ in a matter of days, only to have massive losses days later. Exchanges and investing platforms didn’t know how to handle it. Some stopped allowing any trading of those stocks, others limited trading, and others yet changed what they were going to do from one day to the next. This was a classic scenario where people tried to jump on a trend and ended up losing 80%+ because they didn’t know what was going on and got in too late. While all of that was going on, high quality companies were steadily growing. Understand what the purpose of your investments are and align the quality of your portfolio with that.
Second, be ready to take advantage of opportunities. Chief Global Investment Strategist at Charles Schwab, Jeffrey Kleintop, is calling this a “Bunny Market” because it is hopping all over. We are not in the days of 2019 where the markets steadily rise. We have seen, and will continue to see, large swings on a daily and weekly basis. Knowing this ahead of time allows us to be prepared to buy opportunities and protect gains or profits. In 2020, there were 3 types of investors. There were investors who rode the roller coaster of the market and they ended up slightly positive. There were investors who panicked and cashed out when the pandemic hit and they lost money. And there were investors who were proactive, bought when investments were lower than they should have been, and sold when things were higher than they should have been. These were the biggest winners last year. We are not expecting nearly what we saw last year. But with volatility comes opportunities that we should be taking advantage of.
Third, blockchain and cryptocurrency aren’t going anywhere. We saw Tesla buy $1.5 billion worth of bitcoin in the start of 2021. They also announced that they are accepting bitcoin as payment. Tesla is certainly not the first company to do this. At the same time, we are seeing a change of opinions from large investing institutions. Not long ago, JPMorgan said that they didn’t see blockchain or cryptocurrency as a viable tool or long-term investment vehicle. Now, they launched a cryptocurrency and created an entire unit solely for blockchain projects. There are certainly many questions around both cryptocurrency and blockchain, as well as opportunists trying to scam and make quick money. But we are beginning to see major organizations and institutions accepting both as part of our future.
There are certainly many more lessons we can be taking from the first few months of 2021. And we will continue to see the evolution of our economy, interest rates, volatility, taxes, and the pandemic. As we do, make sure you are prepared!