With another blockbuster year of stock market returns behind us, it is easy to delude ourselves into thinking that 2022 will be another year of double digit returns. While there is a chance, albeit small, that we could witness the unprecedented bull run continuing unabated, it would be wise for all investors to look back on the fundamental question – what makes a stock valuable?

In the olden days, it was dividends that was the reward. But, the internet era turned that model on its head and countered that reinvesting dividends, instead of paying it out to shareholders, drove stock prices even higher and all the investors would benefit. Until, the stock got so high that there were more sellers than buyers and we all know how that movie ends.

Which brings us to investments that went wild last year and will likely never again be repeated. And so, here are a few New Year resolutions for all us to consider.

  1. Do not buy Bitcoin – Bitcoin, at best, is a cool technology. The reason for its popularity is that everyone on the internet has agreed that it is valuable. It has no assets, no way to value it and it is only valuable because those who own it expect other people to value it. Those who don’t own it, buy it because they expect more people to buy it and this goes on until…

  2. Never buy Dogecoin – This is a meme and has no business in anyone’s portfolio perhaps, with the exception of Elon Musk, who does not even care about any of his investors in his own legit company – Tesla.

  3. Stay from NFTs – Non Fungible Tokens are limited editions of weird images that you can buy with cryptocurrencies. These images harken back to days of psychedelic trips on LSD with little meaning or purpose but yet command astronomical prices and has developed a base of investors to look at these NFTs as proxies for paintings by Monet, Pissaro and Van Gogh. How art has fallen to these new lows is beyond anyone’s comprehension.

  4. Avoid gold – Gold and other commodities have been perceived as an effective hedge to the stock market. The problem is that gold, silver and all other precious metals which have no intrinsic value or an effective way to be valued, have historically underperformed even though they are considered a safe haven at times when stock markets are hitting new highs. The harsh reality is that they are another vehicle driven by supply and demand much like bitcoin and dogecoin. 

  5. Meme stocks – If there is one area that smart investors should stay away from – it is message boards and reddit forums. Unfortunately, these meme stocks are profiled in the next day’s Wall Street Journal and featured prominently on CNBC, prompting more buyers who invest their hard earned money in stocks that are in bankruptcy or soon will be in one. Here is another movie with a bad ending.

To conclude, 2022 is going to be a year of transition from easy money, rock bottom interest rates and low inflation to an environment we have not witnessed since the ’80s and ’90s. What is required is solid research, fundamental analysis and long term investing. And, despite that, there may still be some hiccups. But, investing in the stock market was never intended for the faint of heart.