(MoneyWatch) This is our first quarterly review of the we identified at the start of the year. Keep in mind that if they were sure things, they should all (or at least most of them) have come true. As is our practice, we'll give a score of +1 for a forecast that came true, -1 for one that was wrong and 0 for one that was basically a tie.
Fund managers cited a number of reasons that stocks wouldn't do as well in the future, including:
- Demographics (shifting from stocks to bonds as we get older and more conservative)
- U.S. fiscal problems
- Currently high valuations
The market ignored these issues and had a very strong first quarter. Vanguard's 500 Index fund (VFINX) returned 10.6 percent. Small and value stocks did even better: Vanguard Value Index (VIVAX) returned 12.2 percent, Vanguard Small Value Index (VISVX) returned 13.3 percent and Vanguard Small Cap Index returned 12.8 percent. Score -1.
With Europe in a recession that could last for years and the U.S. stuck in a slow growth mode, the highest returns will come from the fastest growing economies, specifically China. European stocks should be avoided.
With the fiscal and monetary stimulus that continues to be injected into the economy, we'll see a sharp rise in inflation.
The seasonally-adjusted CPI was unchanged in January and rose 0.7 percent in February. The unadjusted CPI for the last 12 months rose 2.0 percent. Score -3.
Vanguard's Short-Term Bond Index Fund (VBISX) returned 0.2 percent, its Intermediate-Term Bond Index Fund (VBIIX) returned 0.3 percent and its Long-Term Bond Index Fund (VBLTX) returned -1.8 percent. With the short-term fund underperforming the intermediate fund and outperforming the long-term fund, we'll call this a draw. Score -3.
Gold closed the year at $1,656 and closed the quarter at $1,598. Score -4.
The thinking by many is that if you're going to invest in U.S. stocks, you should seek the "safety" of investments with higher yields, such as high-dividend stocks, master limited partnerships and real estate.
Vanguard's REIT Index Fund (VGSIX) returned 8 percent, the Alerian MLP ETF (AMLP) returned 12.7 percent and the SPDR S&P Dividend ETF (SDY) returned 14.1 percent. That's an average return of 11.6, slightly above VFINX's return of 10.6 percent. However, since high-yield stocks are basically value stocks, the more appropriate benchmarks are value funds. VIVAX returned 12.2 percent, and VISVX returned 13.3 percent. We'll call this basically a draw. Score -4.
The road to riches is through ownership of Apple (AAPL). With rapid growth of earnings and a low valuation, it was loved by both value and growth investors alike.
Apple shares closed 2012 at $529.09. It finished the first quarter at $442.66, a drop of over 16 percent. That's in contrast to the market's double-digit gain. Score -5.
Our eighth sure thing was that it will be a year when active managers outperform their benchmarks. We'll have to wait for the official S&P Active Versus Passive Scorecard, but the arithmetic of active management provides us with the inevitable answer: It's never a stock picker's year.
Eight sure things without a single clear win -- not exactly a great record for sure things. This brings to mind the adage that it ain't what a man don't know as makes him a fool, but what he knows for sure but ain't so.
Image courtesy of Flickr user bitterjug