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Y H & C Investments January 2022 Update- Edition 162

 

Index/AssetDecember 20214th Qtr. 2021Full Year 202
Dow Jones+5.08%+5.86%+18.73%
S&P 500+5.02%+9.39%+26.89%
Nasdaq-3.71%+7.40% +21.39%
Russell 2000+3.98%+.16%+13.70%
Oil+13.95%-.40%+55.82%
Gold+2.60%+3.91%-3.75%
Silver +3.4`%+3.41%-12.01%
10Yr Treasury Jan 2021-.917

December 31- 1.512%

-15.7 Bp+5.1 Bp+59.5 Bp
U.S. Dollar Index-.72%+1.24%+5.33%
Bitcoin-Jan 2021-29,374.15

12/31/2021- 46, 021

 

-14.26%-4.34%+59.00%
Y H & C GARP Model+2.9%+3.0%+29.0%

 

10 Yr. Annualized Return- 17%

 

 
Y H & C Concentrated GARP+7.6%+5.1%+28.5%

10Yr Annualized Return- 4.4%

Y H &C Results Are not GIPS Certified and dependent on third party calculations. They are time weighted  https://interactiveadvisors.com/yhc-investments?portfolio=long-term-garp

 

https://interactiveadvisors.com/yhc-investments?portfolio=concentrated-garp

 

U.S Economic & Financial Markets Outlook-U.S. Economy and Markets Conclude Strong 2021 With Inflation and Covid Recovery Major Challenges for 2022! (Return figures in this section come from the December 31, 201 editions of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

In December, the Dow Jones Industrial Average gained 5.08%, the S&P 500 rose 5.02%, and the Nasdaq dropped 3.71%. In the fourth quarter, the Dow grew 5.86%, the S&P improved 9.39%, and the Nasdaq increased 7.40%. For the full year 2021, the Dow advanced 18.73%, the S&P popped 26.89%, and the Nasdaq floated 21.39%. Investors are by nature a cynical group. Financial markets make one jaded after you experience the numerous trials and tribulations of market events and fluctuations. Even the most cynical person would agree the performance of the U.S. economy and financial markets is strong. Starting with the economy, with consumer spending plentiful and unemployment continuing to creep down, corporate profits remain bountiful. The unemployment rate began the year at 6.3% and as of November sits at 4.2%. A thirty three percent reduction the jobless rate during a twelve-month period is impressive. With more people employed, consumer spending in 2021 appears to be trending near a 1% annual increase, obviously affected by monthly fluctuations. If one considers the restrictions in many states because of the Covid virus, the economic performance is, at the very least, solid. With the future always taking precedent for investors, the important question is how will 2022 evolve? Will the strong trends persist or even improve? Some of the answer is related to whether the Covid question begins to recede or do new strains bring further restrictions because of increases in illness across the country? With new therapeutics, domestic vaccine rates inching up, and an international effort to accelerate the delivery of necessary drugs to protect global citizenry, 2022 may be the year the world puts Covid in the rear-view mirror.

Turning towards the financial markets, with the Dow, S&P 500, and Nasdaq all posting excellent returns, 2021 was a particularly good year for investors. Will 2022 be similar, opposite, or merely non-eventful? With bond yields exceptionally low but probably headed higher, inflation is the crucial statistic the investment world is watching.  With year over year prices up over six percent, fixed income investors are enduring negative real returns which could become steeper. If inflation persists at these levels, central banks could be forced to raise rates quicker than they plan. It would have dramatic implications across all capital markets. Energy prices bear watching, too. With oil hovering at $75-80 per barrel and years of substandard capital investment to maintain and grow field production, there are plenty of predictions for $125-150 per barrel in 2022. Equity markets are priced above historical valuation metrics (22x vs 16-17x). Stocks have seen above average gains over the last 1, 3, 5, and ten-year periods, especially mega cap technology behemoths. Historically, these kinds of statistics indicate at least a pause is in order. It is quite possible small caps and energy have their time to shine.  Inflation and the dollar are the key inputs to watch heading into next year.

Global Economic & Financial Markets Outlook-Europe, North America, and Oil Producing Countries Post Strong Returns While Asia Struggles in 2021! (All country index data provided by countryeconomy.com, December 31, 2021)

The best stock market returns in 2021 took place in Europe, North America, and oil producing countries. With oil rising over 50%, it makes complete sense for countries dependent on oil to perform well. They may be a one trick pony, but when the pony is going well, investors make sure to feed the horse.

In North America, returns were strong across the hemisphere including the major countries of Canada, the United States, and Mexico. Europe performed well with the more mature Western European countries settling in near a 20% return. Eastern Europe showed even more strength with returns closer to 25% and in many cases exceeding 30%. The majority of Asia posted flat results as evidenced by the results in Hong Kong (-.33%), Japan (4.91%), South Korea (3.63%), and China’s Shanghai (+4.80%). India (+24.12%) and Taiwan (+23.66%) bucked the Asia trend.

Looking ahead to 2022, the effect of inflation on global central banks ability to maintain low interest rates will be a prime focus. Turning to politics, the new socialist president elect of Chile means the major countries of South and Central America could all be turning away from free market policies. For many years, the Chilean privatization system for retirement was a model copied by free market advocates all over the globe. A new approach in Chile means South America bears scrutiny for anyone interested in financial markets.

The Art of Contrarian Thinking-Take Advantage of Playing at Home! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

In sports, when a team plays at home, they typically have an advantage. Maybe they are more familiar with the court, field, or diamond.  The traveling team is tired from just getting to the game. It could be a case of ‘home cooking’ where the team at home receives the benefit of all close decisions by the referees. Whatever the specific circumstance, most teams play better at home than on the road. How is this applicable with investing?

In analyzing businesses, having more detailed knowledge of an enterprise gives you a realistic understanding of its daily operations. You have a perspective of the challenges, opportunities, and time horizon of the management. As a result, you can buy a stock with a clearer look than a seller. Over time, you should benefit if your analysis is accurate. As an example, because I am based in Las Vegas, I am extremely familiar with Las Vegas based publicly traded companies. The few where we own shares are excellent companies run by very smart managers (if I do not say so myself). They have good growth prospects which have improved over the last year. There are other Las Vegas based entities which are also fine enterprises, and they may become attractive at a later date. If you know the publicly traded companies in your area, at some point you will get an opportunity to buy them at an attractive price. Take advantage of the knowledge of your immediate area to profit from situations close to home.

Y H & C Investment Model and Company Returns

It is natural for readers to wonder what kind of returns Y H & C Investments generates for investors.  I included the returns of two models which are managed at Interactive Advisors. Please note the returns are not calculated according to GIPS but they are time weighted.  One model returned an annualized return of 17%, the other came in at 4.4%. Over the last ten years, the better performer had positive returns in 9 out of ten years.  The lower performer was positive in seven out of eleven years. If you are interested in these models, click the link on the chart to learn more.

From a results perspective, areas where we did well include real estate, insurance, financial services, merger arbitrage, regional gaming, and specialty retail.  Exposure to energy was the biggest detractor.

On the company level, I want to thank my clients for their continued support.  Interacting with people who trust you with their hard earned money is an ongoing commitment and one I accept and relish.  Investing is important in it helps people do what they want to when they want to do it. Nothing is guaranteed with investing and the future is what matters, so to that end I will continue working hard to create value for those of you who have placed your trust in me.

Thanks for reading the newsletter this month and if you know of anyone who can use investment management services, a referral would be greatly appreciated!

(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

 

 

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