Whitney Tilson’s email to investors sharing his predictions for 2022.
Q3 2021 hedge fund letters, conferences and more
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
Predictions For 2022
I'd like to make some predictions for 2022...
I remain constructive on the market, but don't expect another year of 20%-plus returns. The U.S. market is up more than 17% annually over the past five years and more than 16% a year over the past decade, far above the long-term average annual returns of 9% to 10%. This has lulled investors into lofty expectations which almost certainly won't come to pass.
As always, my advice is to concentrate your portfolio in the stocks of high-quality companies and keep speculative positions like cryptocurrencies, non-fungible tokens ("NFTs"), and options very small (or eschew them altogether). Remember, the surest way to get poor quickly is to try to get rich quickly!
My favorite stocks are both exchange-traded funds in the beaten-up cannabis and biotech sectors, as I discussed yesterday:
The AdvisorShares Pure US Cannabis ETF (NYMARKET:MSOS) is my favorite pick for 2022, for reasons my friend Doug Kass outlined last week. A second pick is another exchange-traded fund, the SPDR S&P Biotech ETF (NYMARKET:XBI). Empire Stock Investor subscribers can read our report on the sector, "This Classic Growth Sector Just Became a Screaming Value," by clicking here. (If you're not a subscriber, you can become one for only $49 for the first year by clicking here.)
My top stocks to avoid are AMC Entertainment Holdings Inc (NYSE:AMC) (see my December 20 e-mail) and Digital World Acquisition Corp (NASDAQ:DWAC), about which I wrote the following on Tuesday:
If I were to pick one stock to avoid in 2022, it's Digital World Acquisition (DWAC), a SPAC that has announced a deal to partner with a company owned by former President Donald Trump, Trump Media & Technology, to launch a social media company called TRUTH Social. I first wrote about it on October 22 and then followed up on December 8, 15, and 20.
I think it's highly likely that the SEC blocks this revolting deal, which has been carefully engineered to rip the faces off retail investors and/or Trump supporters. If so, DWAC's stock will likely trade back to its cash value of $10, representing more than 80% downside.
I think the omicron variant will prove to be the end of the pandemic, as I wrote in last Wednesday's daily: I have increasing confidence that the pandemic will soon be over:
Based on eight more days of data since my December 14 e-mail entitled, Will the pandemic soon be over?, I have a higher degree of confidence (perhaps 70%, up from 50%) that my theory is correct that "the omicron variant, rather than being a global nightmare, may actually soon lead to the end of the pandemic, [as it] morphs into something akin to the seasonal flu in the next month or two."
That said, the huge omicron-driven surge of cases that's already happening in the Northeast, Puerto Rico, Ohio, Illinois, Hawaii, Wisconsin, and Florida is going to spread across the U.S. in the next few weeks – breaking all prior records – which is going to freak everyone out. But then cases will peak, likely in mid-January, and hospitalizations will remain under control, thus transforming the pandemic to an endemic.
As I've argued many times recently, I think the high inflation we're seeing is the result of a white-hot economy, temporary supply chain disruptions, and year-over-year comparisons with a pandemic-driven tepid economic slowdown. I think the latter two go away by mid-year, and inflation returns to roughly 3% and ceases to be an issue.
Finally, as I discussed in my December 21 e-mail, I think the bettors on PredictIt are right that President Joe Biden and Senator Joe Manchin will strike a deal and a smaller version of the Build Back Better legislation passes in the first part of 2022.