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What Every Investor Needs to Know about 2021 and Beyond

This is probably going to be the most important open letter I will ever write to the investing community, but I feel so strongly about what is about to happen that I want everyone to be warned.

2021 is going to be one of the best returning years for asset classes we will ever experience. If you want to increase your wealth, 2021 will be the year to do it. If you don’t act, if you wait, the opposite will happen and you will find it very hard to make a profit for 10 years.

This is why I want every investor to know and understand the situation we are in, as once 2021 passes, making a return on your assets will become very hard. We (all investors) need to make enough money in 2021 that the profits will see us through until 2030. Yes, you read that right, to cover us for 10 years.

Bear with me while I explain.

Let me start by taking a look back at 2020. Who would have thought that a year that experienced the fastest ever 30% drop in stock prices in February and March would end with one stock index gaining 43% ? (that was the Nasdaq100)

How is it possible that Australia is locked down in a bubble, isolated from the rest of the world with cities devoid of people, and yet at the same time the All-Ordinaries stock index did not lose ground in 2020?

America has experienced over 400,000 deaths from coronavirus yet their S&P500 index was up over 16% last year.

But it isn’t just stock markets that have been strong.

According to the Australian Bureau of Statistics, the number of unemployed people in Australia increased 32% over last year, yet house prices are at all-time highs. The Domain House Price Report states that house prices in Australia rose above the 2017 peak in the last quarter of 2020.

Bitcoin just recently hit an all-time high of US$41,962 in early January

In September 2020, Gold hit an all-time high of US$1930/oz

How can this be? How can ALL asset classes, not just one or two, but all of them, how can all of them be hitting all-time highs around the same time when thousands of people are dying from coronavirus everyday and business are closed?

To understand why you need to realise we measure all these things in dollars. Take gold.

Gold doesn’t change. An ounce of Gold from 10 years ago looks the same and does the same as an ounce of Gold today. But we need to hand over more of our dollars to get that same ounce today. It is not that Gold has increased in price, it is that money has decreased in value and so we need to hand over more of that money to get the same ounce of gold

Money decreasing in value also explains why all asset classes are increasing in price and hitting all-time highs at the same time.

This is called inflation. We are in a period of inflation. Maybe not consumer price inflation, but definitely asset price inflation.

This inflation has been caused by the printing of money that has happened all around the world for fiscal stimulus.

Governments want to keep economies moving and people in work and they learned from the GFC that quantitative easing can do this. They fixed the problems caused by the GFC by printing money and spending it. They are trying to do the same thing now.

Every time they provide more stimulus, they print more money, which devalues the rest of the money out there and so you need to hand more of it over to take ownership of an asset.

This is their only plan. Governments around the world will continue to provide stimulus until economies get back on their feet and unemployment rates return to acceptable levels.

This explains why stock prices increased in 2020 even when company earnings might have decreased. It is caused by governments printing more and more money.

The second important factor supporting asset prices is interest rates. Interest rates around the world are basically zero. This drives asset prices higher, particularly stock prices.

The first thing it does is make investors look for somewhere to place their funds instead of earning 1% in a bank account. A lot of that money finds its way to the stock market because stocks are very liquid and offer huge upside.

The second thing it does is encourage businesses to borrow at 2% and invest those funds into the business to increase future earnings. It works like this; imagine you could borrow at 2% and invest those funds for a 20% return. Would you do it? Of course, and it is the same for businesses. And growing earnings means stock price increases.

Lastly, the coronavirus has brought forward 5 or 10 years’ worth of digital transformation to today. Companies have learned to become more profitable through efficiencies and technology. This has led to increasing company profits, which increases stock prices.

For example, Microsoft (MSFT), a $1.75trillion company, just announced revenues up 17% on last year. It isn’t alone. Goldman Sachs (GS) announced their best quarter for 10 years. Apple (AAPL) reported revenue of $111billion in just the last 3 months which is a 21% increase over last year.

In our lifetimes we have never experienced such a perfect environment for rising stock prices. The three legs of the stool stocks are standing on are

  • Fiscal Stimulus
  • Zero interest rates
  • Rising company earnings

Usually, just one of these would be enough to cause stock prices to rise. Having all three together at the same time is investing nirvana.

Which is the basis for why 2021 will be a fantastic year for stock price gains.

Governments have no other idea how to fix their economies except to throw money at them. They will continue to do so in 2021. They will not stop as they have no other choice.

In the US, the new President, Biden, wants to inject another $1.9trillion. That is after the $900billion they spent in December.

If that $1.9trillion does not work, do you think they will say “oh ok, that didn’t work so let’s try something else” or will they just keep doing it until it does work?

Every time they stimulate, it creates more money which causes asset prices to rise.

This will be the story for 2021. Assets prices will rise in correlation with how much money they inject into the economy to reduce unemployment.

This is why you absolutely must be invested in assets in 2021. If you sit in cash then you are actually going backward because cash is being devalued by stimulus.

Investors think of cash as a safe investment. But in 2021 it will be one that loses you money as your purchasing power is eroded.

Which brings me to 2022 and beyond.

The US and UK are already rolling out vaccines. Australia will start in March. By the end of the year, large portions of the population will be vaccinated. This means economies can return to some level of normalcy. Once business re-opens and unemployment starts to drop, stimulus will no longer be required

It is very likely we will see the end of stimulus by the end of 2021. That removes one of the three legs of the stock price stool. In addition, by the end of 2021 stock prices are likely to be very high.

It will be extremely hard for stock prices to go higher in 2022 when the stool only has two legs. It will get a bit wobbly.

But it won’t fall over, because the other two legs are strong and will remain for a lot longer.

Interest rates will be zero for a long time. The US Federal Reserve recently said they have no intention of increasing interest rates until they see a full year of consumer price inflation above 2%.

Bespoke Investment Research group wrote “We cannot understate one clear takeaway from the FOMC press conference today: it was the most dovish we have seen from any Federal Reserve Chair in our careers. There was no major change to the statement, but Chair Powell spent his entire hour with reporters hammering home the idea that the Fed has made full employment the only possible goal for monetary policy. The Chair repeatedly returned to the idea that the focus of the FOMC is the final pocket of workers who will still be jobless even after the economy is generally back to normal following mass vaccinations. In other words, the target for policy is not some loose sense of a normal labor market, but instead something much more: “we want everybody to be able to share in the prosperity of the US economy”, in Powell’s words.”

The Fed are being incredibly clear. Zero interest rates are here to stay for a very long time.

Remove one leg and the gains stop. But the two remaining legs should be enough to hold things steady.

Company earnings will continue to increase in this environment but it will take many years of earnings increases to justify what will be very high stock prices. It will be much like the period of 1999-2009 where stock prices hardly moved

This has been called “the lost decade” and another one is coming our way from 2022

Failing to act now and capitalising on the best stock market environment of certainly my lifetime, will be disastrous for the future. We need to make enough this year to cover us for what will be a very low return period to come.

I cannot stress this point enough. You have 12 months. Then nothing for 10 years.

How do you maximise the next 12 months?

Buy assets. Do not sit in cash. It doesn’t really matter what assets, as asset price inflation will drive them all. But I am biased. I prefer stocks.

The best way I know to maximise returns from stocks is to buy companies with growing earnings. After all, if you want to grow your wealth then you simply invest in growing companies. This is exactly what our Top 30 model does.

Recent returns have been fantastic. It gained 48% from June 2020 to December 2020 and has started 2021 where it left off, up 11% already in just the first few weeks against a market that has been flat. One of the stocks it recommended on January 4th is up 70% today. Another one is up 49%.

These kinds of gains are possible. We are seeing them in live accounts right now.

If you are not sure of what to invest in, this is a great starting place. You can learn more and add yourself to the email on our website at

Capital 19 Top 30

I know that was a lot to read and take in, so thank you for taking the time. I’d love to hear your comments and questions, so send them in.

I wish you all the best for 2021 and beyond.

Stay Long.

Matthew Jones

Director Capital 19

Performance and profit calculations are theoretical and calculated by Capital 19 and do not reflect actual investments in the companies mentioned they also do not include the costs of commission or the effects of exchange rates or taxes. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is not a reliable indicator of future performance.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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