Breadth Thrusts & Bread Crusts: For Your 2022 Outlook, Take Price Over Projections

JC Parets
December 9, 2021

From the desk of Willie Delwiche.

It’s that time of year again -- a time when our inboxes are overflowing with reflections on the year that was and speculations on the year that will be. 

We used to wait until the year ended before recapping its events and previewing what lies ahead. But these annual outlooks have been showing up earlier and earlier in recent years. In fact, I think I saw my first 2022 outlook piece before the calendar flipped to December...

I read my fair share of outlook pieces and would not go so far as to say they are all useless. I prefer those that identify a few broad themes for consideration over those filled with detailed forecasts and a veneer of precision. After all, we should recognize the limits in the usefulness of even the best prediction pieces.

By their very nature, outlooks are filled with stories about what could or should be happening in the world. Unfortunately, this noise can drown out the awareness of what is actually happening.  Elaborate narratives can help justify our expectations, but might reflect an overthinking of reality. The more we refine and polish the story, the harder it is to accept evidence that challenges it. 

A real-world example is what is currently happening in the South China Sea. Headline writers are having a field day discussing an existential crisis for Taiwan. Reporters are discussing perceived provocations and potential retaliations that could usher in a "New Cold War" between China and any number of other countries. Columnists make the case for active US involvement in any conflict that takes place. All told, the narratives are compelling and the consequences seem real.

Yet the market sees this all as noise. Taiwan is hitting new highs and is one of the strongest stock markets in the world. If there is a crisis, it's in mainland China, which is down double-digits and is near its lows of the year. Sabre-rattling aside, EWT seems to care more about what Semiconductors are doing than what China might do.

To be clear, I have no specific view on geo-political tensions between China, Taiwan and the rest of the world. But as an investor, I would rather trust what the market says is happening than stories and speculation from pundits about what could happen.

Feel free to download and read a couple of annual outlook pieces if you must.

But please keep the following in mind:

  • Accurate arithmetic can be used to distract from guesswork in the initial assumptions.
  • Decimal places are added to lend an air of credibility.
  • Market developments by the end of Q1 will most likely render most of what was written about for next year moot. 

The final arbiter for any investor must be price, not projections.

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