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2021 In Review

“An optimist stays up until midnight to see the New Year in.  A pessimist

stays up to make sure the old year leaves.” – William E. Vaughan

While there is plenty that we would all love to see left behind, we are excited about the new year and what lies ahead.  My family and our entire Nickels Wealth Management team wish you a wonderful 2022!  We started off the new year wearing shorts and sandals at my house with 80 degree temperatures.  The next day, my boys were outside in their coats and hoodies throwing snowballs at each other.  Winter in Mississippi, you never know what to expect!

The last 2 years have undoubtedly been the two most shocking and terrifying years for investors since the Global Financial Crisis of 2008-2009.  We have all dealt with the outbreak of the pandemic, the bitterly partisan presidential election, pandemic’s second major wave, and most recently a 40-year inflation spike.  One wouldn’t be human if they haven’t experienced serious volatility fatigue at some point.  What came to matter most was not what the economy or the markets did, but what the investor did (or didn’t do).  It is my steadfast belief that acting on a long-term plan rather than reacting to current events continues to give us the best opportunity for positive outcomes.  I am convinced it will always be that way.

“Far more money has been lost by people preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”- Peter Lynch

Life is full of teachable moments.  I’ve recently been reminded of a speech given 25 years ago on December 5, 1996 by then Federal Reserve chairman Alan Greenspan.  It should serve as a great reminder for all long-term, goal focused, plan driven investors, like us.

Alan Greenspan, speaking at a dinner of the American Enterprise Institute in Washington, gave his legendary “irrational exuberance” speech warning of an impending stock market meltdown.

Fact: The Standard & Poor's 500-Stock Index had closed that Thursday afternoon on December 5, 1996, in total ignorance of what was coming later in the evening, at 744.38. And sure enough—just as Mr. Greenspan had darkly suggested it must—the S&P 500 topped out…three years, three months and 19 days later, on March 24, 2000, at 1,527.50. You read that right: it more than doubled in the 40 months after Greenspan's dire warning!

The obvious conclusion: No one—no central banker, no economist, no market strategist, no hedge fund manager—no one can predict the market, much less tell you where to get out and/or back in. The economy cannot be consistently forecast, nor the market consistently timed. By anyone.

A few other relevant facts:

• Last month December 3, the S&P 500 closed at 4,538.43, up more than six times since Greenspan spoke.

• With dividends reinvested, and any taxes paid from some other source, $10,000 invested in the S&P 500 on 12/4/96 is getting pretty close to $100,000 along about now.

• The earnings of the S&P 500 for the year 1996 were $40.63. The consensus forecast is around $200, up almost five times.

• The S&P 500's cash dividend in 1996 was $14.90. Consensus forecast for this year is about $60, up almost four times.

The single best financial decision you could have made on Thursday night, December 5, 1996—when the 10 o'clock news reported Greenspan's electrifying remarks? Turn off the TV and go to bed.  Just my opinion, of course, but the best move you can make 25 years later regardless of the headlines: turn off the TV, log out of your computer, and enjoy the rest of your day.

It is a privilege to serve you.  Thank you for being our clients. 

Happy New Year!

Bain Nickels, CKA®


Sources: Historical S&P 500 Index and dividends: “S&P 500 Earnings History, NYU Stern School.” Consensus 2021 earnings forecast: Yardeni Research. Consensus 2021 dividend forecast: Bloomberg. Consumer Price Index: Current net profit margin of the S&P 500: FactSet.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

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