2022 will be a crucial year for deep value stocks!

The Correction has begun‌, and what caused it‌

As we all know 2021 was a impressive year for most Index Funds, especially the US market.

Which resulted to excessive stimulus from the Feds, to neutralise the Covid 19 situation which had deeply affected the world

This causes massive amount of money printed to faciliate more jobs to reduce high unemployment rates and keep businesses alive.

Thus, resulting to a minor backfire, which causes inflation to rise in a short period of time.

As more people are saving the stimulus check or investing in the stock market for short term gains.

Recently JPOW's statement has caused an uproar in the market, as inflation is bound to happen in the short term.

With effect, JPOW has decided to reduce and stop tapering as soon as possible.

This will happen by the end of March 2022.

Tapering to end

Fed Assets Purchases.

Since June 2020.. 120b per month

Dec 2021.. 90b

Jan 2022.. 60b

Feb 2022.. 30b

March 2022.. 0b (End of tapering)

Next year, 3x (0.25%) rate hikes in 2022, so roughly interest rate will be 0.75 - 1%.

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P.S, However, with recent updates on JPOW and other investment firm analyst, we will most likely to see rate hikes increase to x4 instead of x3.

Average Return for SPY is 10%

SPY had a whooping 26.9% returns as of 27th December 2021 since the start of fiscal year.

The Average SPY returns was 10% with the inclusion of inflation, that means those who had invested their money on SPY during 2021 make an extra 16.9%.

As a result, created an expensive market or overextended whichever you called it.

What is given more, will be taken back!‌

2022 will be a crucial year for most over-valued stocks, which will take a dive back to their intrinsic value or way below that level depending on their valuation.

Once again, i am no prophet to predict whether the market will favour the deep value stocks.

But i believe if you are investing in good businesses with strong moats and great financial assets, you shouldn't worry that much.

My thoughts on the market in the first 6 months,‌

According to Hedgies and Investment Firms, i believe Goldman and others have predicted instability in the market for the first half of 2022.

This is the time, where most big boys will shift their primary assets back to value stocks. 

Whoever, invested on deep valued stocks will be rewarded later half of the year, when earnings are released on Q2-Q3 of 2022.

If you had paid more for a company that is worth more than the value, you might suffer a huge loss, if you are not averaging down.

so in my opinion, i believe when it comes to investing, do apply the margin of safety, so that losses are minimal if the situation does not move the way you wanted it to be.

If you are trading, this post probably won't give you much insight, as your strategies are more technical than investings.

Conclusion‌

Rate hikes is bound to happen, However, it is still minimal, and it won't affect good growth and value stocks.

Be prepared to take losses, or wait longer if your capital funds are low, especially if you have paid more than what the companies is worth.

Always, always invest with calculated risks!

If you are long term value investing, just avoid macro-trends and focus on the valuation/ game plan of your portfolio. 

Lastly, avoid over-leveraging as to prevent margin call.

As always stay safe and may the market be ever in your favour.