What a year it’s been.
Last March, the coronavirus pandemic swept across the globe.
Financial markets went into a tailspin.
The S&P 500 set a record – unsurpassed since 1928 – for how quickly four months’ worth of gains were wiped out after hitting an all-time high.
But those few who doubled down and bought U.S. stocks made historic gains.
The S&P 500 soared almost 75% between March 23, 2020, and March 23, 2021.
It was the index’s largest rise over any 12 months since 1936.
Predictions About the Pandemic
I recently reviewed what I had written in Liberty Through Wealth columns a year ago.
My basic message was simple.
I recommended you “keep calm and carry on.”
I also set out a future scenario on March 19 – just four days before the U.S. stock market bottomed:
The year is 2022. And you are sitting on a “bloody fortune.”
After a turbulent year in 2020 – even as investors around the world were losing their heads – you kept your cool…
You knew that at times like this, having an investment philosophy is far more critical than staying glued to the latest financial headlines.
You stuck to your stops religiously.
You had to make sure you’d stay alive to play another day.
You studied how investors before you had made their fortunes coming out of bear markets. You positioned yourself to hit home runs.
You invested in bombed-out stocks. You identified leveraged ETFs in sectors that were crushed during the market sell-off. You focused on assets that had tumbled as much as 80% to 90%.
Only then were you ready to pounce. But when you did, you dared to bet big.
Yes, COVID-19 stole a chunk of your life. But in return, it allowed you to achieve a life of financial freedom.
So how does this analysis hold up?
Pretty well, I think.
I failed to foresee the sheer level of speculative excess that would follow the COVID-19 panic.
If March 2020 was all about doom and gloom…
March 2021 is all about reining in a full-fledged financial mania.
Predictions for the Next 12 Months
A word of warning…
My predictions today are no more popular than the ones I made a year ago.
In early January, I called Tesla (Nasdaq: TSLA) a bubble, likening the electric vehicle boom to the British bicycle bubble of the 1890s.
I later questioned the investment success of Cathie Wood and Ark Invest.
Both Tesla and Ark Invest are down by more than 30% since then.
And I’m betting both will fall much further.
The same fate awaits most “disruptive” stocks, cryptocurrencies and other purely speculative assets, like SPACs (special purpose acquisition companies) and NFTs (non-fungible tokens).
Usually, I’m skeptical of anyone who claims they can predict the future.
But I’ve read too many books on financial history.
Investors revel in the feeling that financial mania gives them.
They genuinely believe – as Cathie Wood does – that Tesla is worth $15,000 a share (which would make Tesla worth more than China’s annual GDP).
They genuinely believe that Bitcoin is a real currency – as is Dogecoin, a cryptocurrency created as a joke.
To me, today’s environment is almost distressingly familiar.
At the height of Dutch tulip mania, you could have traded a single tulip bulb for a house on the canal in central Amsterdam (worth about $2.5 million today).
Yet no one ever did.
Point out that the same fate awaits Dogecoin, and you get dismissed as someone who doesn’t “get it.”
But in the end, the chickens always come home to roost.
Investors buy in near the peak. They always have.
And they sell out at the bottom. They always will.
That’s advice you can take to the bank.