2021 has been a good year for the broader stock market.
- The S&P 500 (SPY) is up +22% in 2021.
- The Vanguard Global Stock Index (VT) is up +12% in 2021.
However, beneath the headline there was some real weakness in some of the most popular growth stocks of the last few years.
For example, Paypal, Inc. (PYPL) has delivered big gains in the last few years but shares fell sharply in late October, falling about 40% from the 52-week high. Take a look at the 12-month chart below.
*charts from tradingview.com
Square (SQ) has also delivered big gains in the last few years but shares also fell sharply in October and November, down around 50% from the 52-week high. Take a look at the 12-month chart below – shares were looking solid in October before a sharp turn lower in November.
Beyond Meat (BYND) hit $220 in early 2021 but fell more than 75% from the 52-week high and shares are trading around $65.
We also saw some extreme volatility in some of the most popular IPOs of 2021.
- Coinbase (COIN) began trading at $430 in april, fell to $200, went back up to $380 and then fell back down to $240.
- Bumble (BMBL) went public in March, first trades happened at $85 and shares have since fallen to $32.
Many of my growth clients owned these stocks and this weakness weighed on portfolio returns in 2021.
What is the Message?
The weakness we saw in these growth stocks is a reminder to both me as an advisor and for my clients that individual stocks can be extremely volatile. And portfolios holding a lot of individual stocks can be very volatile and can diverge significantly from the broader stock market. This is the message I am going to share with my clients as we do annual review and re balance portfolios for 2022.
What is the Path Forward in 2022?
For investors who want more stability in the portfolio and who want to track the broader stock market better, here is the plan in five steps.
- Trim allocation to big tech stocks such as Apple and Amazon to no more than 5% of portfolio for each holding. We have seen big gains in these stocks in the last few years and some of my clients have more than a 10% allocation to some of these names.
- Sell under performing growth stocks such as PayPal, Square, Beyond Meat and others.
- Trim or eliminate cannabis stocks.
- Continue holding food and energy stocks.
- Sharply increase allocation to index funds such as S&P 500, Vanguard Global Stock Index (VT), S&P 400 Mid Cap Index Fund (IJH) and S&P Small Cap Index Fund (IJR).
I am in the process of doing annual reviews right now. If you have not heard from me yet you will hear from me soon.
I’ll be back with another update next week when I will share my outlook for the global stock market in 2022 and how growth and conservative investors should be positioned.
