My Thoughts On The 2021 Stock Market Crash

What's up you guys, it's Graham here. So first of all, can you believe it? We only got about 40 days left so far in 2020, depending on when I post this. Which means I could finally start using 2021 in the titles of my videos!

No, but in all seriousness, as the year comes to an end, we've been through a lot. And through a really turbulent time, this entire year could basically just be summed up as a test of your endurance. Not to panic sell and don't time the market because everything experts said would happen has rarely ever happened. In fact, in terms of beating out these experts, it was found that last year throwing random darts at the board of index funds outperformed hedge funds again. And if you want to step things up a notch, a group of blindfolded monkeys outperformed the stock market index by 1.7% since 1964.

So I think it's pretty safe to say you could ignore a lot of these stock market experts in their predictions, except for me because at least I'm self-aware that I can't consistently beat the markets long-term. So if you can't beat them, you may as well just join them.

Anyway, with the blindfolded dart-throwing monkeys out of the way, which I'll cover later on in the video because it's actually really interesting in terms of how they did this experiment, but let's talk for a moment about what I think is going to happen with the stock market in 2021. I'll share with you exactly where I am investing my money, and then I'll give you some of the reasons both for and against the stock market having another incredible year next year in 2021.

But before I start the video, all I ask for in return, especially if you like blindfolded dart-throwing monkeys, is just to hit the like button for the YouTube algorithm. And just to sweeten the offer for you guys, if this video gets 100,000 likes, I will invest a hundred thousand dollars of my own money into the stock market in a similar way that these monkeys do, and then I will track the progress here in the channel over the next year. That's it! So thank you so much, really appreciate it.

With that said, let's get into the video. Alright, so first, if there's anything we've learned so far in 2020, it's really just the ultimate test of endurance. When you see shutdowns go into effect for an illness we don't know much about, well, the stock market plummets five to ten percent day after day. It takes a lot of mental fortitude to tell yourself, “I am not going to sell,” and if I have any money left over, I'm actually going to continue buying into it. Now, even though I didn't sell anything back in March when everything had dropped 30 to 80 percent, I'll be honest, I played it a little safe. I had just purchased another property; I was unclear exactly how this was going to impact my business and I kept extra cash on the sidelines just knowing that, in a worst-case scenario, I would be able to still sleep at night.

Now, in hindsight, I should have taken every penny I could possibly get my hands on and just thrown it into the market as soon as I had it. But by the beginning of April, I realized that I was playing it too safe by keeping too much cash on hand, which I realize is a good problem to have. So I resumed my normal course of investing back into the markets, and I've been doing that ever since. My largest position is still in index funds mixed between the S&P 500, the total stock market index, and also some international stocks.

And then of course, on the side, I bought some individual company stocks that I like and believe in long-term. That was meant to be a small portion of my portfolio, but companies like Cheesecake Factory, Tesla, Nio, Enphase, Google, Ford, Net, Boeing, Bank of America, JPMorgan, and Plug did incredibly well, so I've just held those.

Sure, we've seen some dips along the way, and we've seen some all-time highs, but throughout all of that, I've just kept buying. I've allocated a percentage of my income that just gets plowed into index funds, regardless of where it's trading at. And long-term, I've taken the approach that whatever happens day to day is not going to make much of a difference 20 years from now.

But as far as where I think the stock market is going in 2021, I have a slightly different take on things. To give you that answer, let's go over some of the reasons why the stock market might continue to climb higher, and then I'll give you some counterarguments as to why the stock market could continue dropping into the depths of the trenches.

It's kind of like me asking, “Do you want to hear the good news first or the bad news first?” I think it might be a good idea to get some of the bad news out of the way early on so we could end this on a positive.

Now, we want to make it very clear that a lot of the speculation could change week by week depending on what actions take place. If there's another trillion-dollar bailout, if another stimulus goes into effect, or if any changes are made to any policies. Sometimes what we think is gonna happen doesn't actually happen because once we know about something, we have the powers to act in ways to change it. It's as if I told you that you're about to walk outside and slip on a banana peel, so you choose not to walk outside, and because of that, you don't slip on a banana peel.

Well, the same thing also applies to the markets. So as of right now, here are some of the issues we're going to be presented with for 2021.

One is going to be unemployment. As of right now, 11 million people are unemployed, and that's a number which has been steadily decreasing since April. But still, seven percent of the entire population is a lot of people, and that's only what's being reported. It's speculated that once our economy begins reopening, there's not going to be enough consumer demand to justify these companies holding on to everybody. So inevitably, a lot of these companies are going to have to reduce their overhead just to maintain profits. In fact, it's even reported that four million jobs will have vanished forever, given how many people are shifting over to remote work. So as unemployment remains very high, that in turn is bad for the economy.

Number two, we also have the possibility for further shutdowns. If this happens, it's unclear how this is going to be impacting the jobs market or if further layoffs are going to go into effect, if mom and pop businesses have the means to weather through, and what's going to be left standing when all this is over. On the bright side, a lockdown would help lower cases, but in the short term, it's going to be a very difficult time for brick-and-mortar businesses. Because of that, I have a feeling that the stock market would react to this in a similar way that it did earlier in the year, and that would be by some very spooky stock market drops that would cause a lot of people to panic sell.

Number three, as we've heard time and time again, the stock market is not the economy. And every single day, it seems to be more and more disconnected with reality. Like, you would think with everything going on, we would not be surpassing all-time stock market record highs. You would think that announcing a stock split wouldn't cause the stock to rise 20% overnight. You would think that there would be a shred of logic when pricing the markets, but no. More often than not, the stock market is illogical. It doesn't care about the fundamentals and it doesn't care what you think the stock should be trading at; it just does whatever it wants.

That worries a lot of people who think that one day all of this optimism is going to wear off and suddenly stocks won't seem so good anymore when they're brought down to reality.

And fourth, there's also the concern that people are not going to be spending the same amount of money as they once did, and that would lower corporate profits. Now, obviously that depends on the company because some online businesses are going to be doing exceedingly well. But if we're just going to be referring to the overall market, less spending equals less growth. On top of that, there's really not a lot of room to lower interest rates below where they currently are either. So the only way to get people to spend more money is either to get jobs back or offer more stimulus. And if more stimulus doesn't come, it could take us a while to dig ourselves out of the mess.

And of course, before you guys chime in and say, “But Graham, what about the inflation? You didn't talk about the inflation!” I would tend to agree with that. But oftentimes inflation can actually be good for the stock market because that will cause prices to go up. Not to mention, inflation would be caused by people spending more money, which would only happen with more jobs or more stimulus. So for now, I'll just leave that one out.

But don't worry, things aren't always so menacing and grim. Because with all the bad news out of the way, let's talk about the good news, and we'll start here. First, we have some talks about a pretty substantial vaccine that could be coming pretty soon if everything goes according to plan. Once that happens, our economy could very well return to a kind of normal again. There's the assumption that we might also get to see a lot of pent-up demand as well with the potential of a stimulus piled on top of that. So you bet people are going to be very excited to get back out, start traveling again, and start returning to a somewhat normal.

The second is more the assumption that if the economy gets too bad, the Federal Reserve and the government will step in to boost things up. They've already lowered interest rates to historically low levels; they've talked about an even greater stimulus package in the works. And should we find ourselves in a bind, there's the unspoken assumption that the government will step in. So far, they have to a certain degree, and some might argue who benefits the most from this. But from the stock market's perspective, it's been working.

Third, because we've already had time to analyze a lot of this information, I doubt that even if a drop does happen, it's ever going to be as severe as what we saw back in March. I think the biggest worry people have is that maybe instead of seeing a very quick and sudden drop, we're gonna see a slow and steady decline. And hey, maybe that's a possibility, but given how much fear is already out of the way, everything from here on out seems more optimistic than it was back then.

Which leads me to think that even if there is a drop, it's not going to be as bad as what we've already seen. Now fourth, there's the assumption that a lot of the bad news is already priced into the markets. Like when it comes to the stock markets, it's very forward-thinking. It doesn't care what happened yesterday or what's happening today; it just matters where people think the market is going to be headed in the future, and then that price is reflected today.

Right now, it's almost priced in that unemployment is going to stay high, the jobs aren't coming back, that maybe a stimulus is not going to happen, and despite all of that, we're still near an all-time high. That makes me think that as things improve, so could the stock market as some of this bad news begins to wear off.

In fifth, as the economy begins reopening, we could very well see a shift towards recovery stocks. These are some of the really hard-hit businesses like airlines, casinos, hotels, restaurants, and so on. These are the last sectors to really return to normal. But as a vaccine comes out and people start going out more, eventually some of those stocks will begin to recover as people move their money out of tech, and that will boost up the stock prices.

So obviously, as you can see, we've got some decent arguments both for and against the stock market for 2021. Although as far as what I think is gonna happen for 2021, I think we're going to continue at a similar trajectory as we are right now, but on a smaller scale. I don't think we're gonna have the same levels of panic and euphoria as we've seen this year, and hey, maybe that's a good thing.

But I think 2021 is going to bring us a lot more stability now that a lot of these unforeseen surprises are out of the way. Now, that's not to say the markets can't go down, but I would be shocked if we saw another sharp movement downwards like we saw in March. And all things being equal, if everything stays the exact same as it is today, I would not be surprised if the market next year is higher than where we are right now.

Now this depends on a few variables, like how quickly does a vaccine come, is there going to be another stimulus, or is there going to be another shutdown? All of those are going to impact the market significantly, but nothing is going to change my investment strategy for next year, which is just to smash the like button an odd amount of times.

But now in all seriousness, my investment strategy for next year is just to continue plowing as much money as I can into index funds and just letting it grow. If the market goes down, great; I'm buying cheaper. And if the market goes up, that's great; I'm making money. So either way, I win. But the bulk of what I'm going to be doing is just the boring buy and hold index funds and then waiting for a good real estate deal to come up. And if it doesn't come up, then more of that money goes back into index funds.

I'm also fairly optimistic with biotech and renewable energies. I know we've seen an incredible run so far on those already this year, but I think we're going to continue expanding more into solar, renewable energies, electric vehicles, and so on. Even California wants to go fully electric by 2035, and that could be a huge push in that direction.

But overall though, I'm a fairly boring investor; I just believe in doing the same things repetitively over and over again and sticking with what works regardless of what happens in the short term. But in this upcoming year, I think we're gonna see more green than red. We'll have more ups and downs, and overall it's gonna be a positive for the market.

Oh, and back to the whole monkey picking stock thing because I get it; that's what you guys really wanted to hear about. So here's how the monkeys were able to beat the market. In fact, 98 out of 100 monkeys did better than the index. So here's how that happened: these monkeys were geniuses! Just kidding.

These results were because of how these stock picks were structured, and in replacement to monkeys, they used simulations, so that way no monkeys would be harmed. They did this by randomly selecting a hundred portfolios containing 30 stocks from a thousand stock universe. Now, what makes this one so significant is that out of a thousand stocks, the top 30 make up 40% of the entire market cap. That means the other 970 stocks made up the remaining 60% of the market cap, and their return was 10.5% annually.

That means that the smaller stocks, which would be more likely to be included in a randomized portfolio, led the market slightly higher than the larger stocks which made up most of the index. Or in other words, by randomly selecting stocks, they were statistically more likely to include smaller stocks which otherwise would have been overlooked, and those stocks ended up having a higher return.

It also helps that these portfolios were left untouched, meaning that no one was sitting there panicking over their investment going down five percent of value, or trying to desperately FOMO in and throw money into the markets as something is going up in price. Like it's been mentioned before, just buy and hold, and don't panic sell and don't FOMO into the markets. Or you could just go and get monkeys!

But really, if we could learn anything from this monkey experiment, it's just this: the smaller overlooked companies might have the potential to go up higher in value, but they're a lot riskier and a lot more volatile. Most would say it's probably not worth taking the risk for an extra 1.7% by going with smaller, more unproven companies compared with the big heavy hitters. But with risk comes reward, and that's how these smaller portfolios ended up doing a little bit better.

So anyway, those are my thoughts on the 2021 stock market. And with that out of the way, expect to see 2021 in a lot more titles because it's almost that time of year again! I can't believe it; it seems like yesterday when I made this how to prepare for the 2020 recession video.

So, there you go! And if you guys want me to do that hundred thousand dollar stock market challenge video like the blindfolded monkeys did, just let me know down below in the comments or by smashing the like button on the video. Like I said, if this video gets a hundred thousand likes, I will 100% do it! So if everyone who just watches this video in the first 24 hours does it, we would hit this in the first day.

And now the choice just comes down to you. So with that said, you guys, thank you so much for watching; I really appreciate it. As always, make sure to subscribe and hit the notification bell. Also, feel free to add me on Instagram; I posted pretty much daily. So if you want to be a part of it there, feel free to add me there, as in the second channel, The Graham Stephan Show. I post there every single day I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that.

And lastly, if you guys want three free stocks, use the link down below in the description and Webull is going to be giving you three free stocks when you deposit a hundred dollars on the platform, with two of those stocks worth at minimum eight dollars and all the way up to one thousand six hundred dollars. So if you want those three free stocks, use the link down below. Let me know which three you get. Thank you so much for watching, and until next time!