Don't Drop the Ball

Investing for the new year...

Written by Jimmy Mengel
Posted December 28, 2021

Dear Outsiders,

Ring out the false, ring in the true.

— Alfred Lord Tennyson

As we limp into 2022, I’m looking back on what has been one of the strangest and most bewildering years I’ve ever seen.

From the storming of the Capitol in the very first week of the year to the disastrous withdrawal in Afghanistan to the first commercial space flight, the year hasn’t been short on dramatic news.

Oh yeah, and that whole pandemic thing is still hanging above our heads like the blade of a guillotine. 

Despite deadly second and third acts by the dreaded COVID-19, rampant inflation the likes of which we haven’t seen in decades, and worldwide supply chain disruptions, the S&P 500 has still risen yet another 27% and just closed at a record high of 4,725.79.

That’s the 68th record close of the year.

How does one of the longest bull markets in history keep steady with all this — excuse me — bullshit going on?

First off, the Federal Reserve has been spending money faster than a junkie with a trust fund: $80 billion worth of Treasury securities and $40 billion of mortgage-backed bonds each month. It added a head-exploding $8 trillion since the start of the pandemic, making it the single largest asset purchase program in Fed history. 

That has been propping up the stock market to a large degree. If interest rates are near zero and inflation is eating away at their cash, it leaves investors nowhere to go for yield except the market. That’s a major reason we saw such inflows into equities.

But due to the sky-high inflation, the Fed finally decided it was time to start winding down the party. Chairman Jerome Powell announced three rate hikes over the next year. Many experts believe that number will creep up as the year goes on (one analyst said it could go as high as eight times).

The lack of easy money is going to make things choppy as the market adjusts. Trees don’t grow to the sky, as they say, so I’m not expecting new daily records. That’s why I’m looking into trends and catalysts that should see growth in 2022. 

Here are a few of my predictions for next year so you don't drop the ball after the ball drops…

Psychedelic Medicine Will Go Mainstream 

I call this the “shroom boom.”

While psychedelic drugs like LSD, psilocybin (magic mushrooms), and ketamine were initially developed for the medical realm, they were made illegal in the Controlled Substances Act and labeled as Schedule 1 in the United States — which means they have “no currently accepted medical use in treatment.”

That will be changing, and fast.  

There are currently dozens of trials being conducted for using these drugs to treat depression, anxiety, and PTSD. Those are each multibillion-dollar markets, and breakthroughs in these studies will be a massive boom to the nascent companies that have an early lead.

And despite the misconception, these mind-altering drugs have been shown not to be addictive. In fact, one of the many trials going on studies if psilocybin could work to fight drug and alcohol addiction. That is yet another market that currently doesn't have an effective method of treating those disorders.

Early trials have been promising. In fact, a new trial conducted by Compass Pathways (NASDAQ: CMPS) showed that. To date, it is the largest-ever clinical trial of psilocybin as a treatment for depression. Disrupter billionaire Peter Thiel, the founder of PayPal and an early cannabis investor, has already read the writing on the wall and backed both Compass Pathways and psychedelic startup atai Life Sciences.

For investors, it could be like the first cannabis boom.

According to Fairfield Market Research, the psychedelic drug market is projected to nearly double over the next five years, from $3.2 billion to $6.3 billion.

Keep an eye out this year — it could be quite a trip. Speaking of drugs…

Cannabis Stock Will Rebound

After years of outsized returns, cannabis stocks took a big dip this year. The Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ), which tracks the major cannabis companies like Canopy Growth (NASDAQ: CGC) and Tilray (NASDAQ: TLRY), has shed 15% this year. 

Those particular companies have fared far worse: Canopy lost 75% and Tilray dropped 70% since February. 

It’s been a bloodbath. But the results seem completely divorced from reality, and cannabis industry sales have been thriving during the pandemic. In 2020, they hit a record of $20 billion and broke that this year by posting $26 billion.

Marijuana Business Daily projects that sales will almost double to $46 billion by 2025.

I believe we’ve hit a bottom on the sector, and I am long-term bullish on cannabis, so buy this massive dip for a return to form next year — especially as several large states like New York and New Jersey come online.

Safe Dividend Stocks

Dividend stocks are going to continue to shine next year.

Whenever there is uncertainty in the market, I always rely on my trusty portfolio of dividend aristocrats — companies that have raised their dividends for 25 years straight. During times of turbulence, I can count on these companies to remain steady while providing me income regardless of what the market throws at me.

I trust that 2022 will be yet another solid year to own companies that make tangible things that you can understand and recognize. And be sure to diversify: In my Crow’s Nest portfolio, we own aristocrats like Hormel Foods (NYSE: HRL), Illinois Tool Works (NYSE: ITW), and Medtronic (NYSE: MDT). That's food, tools, and medicine, which will keep you insulated from any major market swings next year.

Slow and steady wins the race, and these types of companies should be the backbone of any portfolio — in good times and bad.

Have a happy new year, everyone. Safe safe and stay invested. I’ll see you in 2022!


Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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