(MoneyWatch) This is our second quarterly review of thewe 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, a -1 for one that was wrong and zero for one that was basically a tie. All returns are through June 30.
Reasons that stocks wouldn't do as well in the future included:
- Demographics (shifting from stocks to bonds as we get older and more conservative)
- Our fiscal problems
- Currently high valuations
The market ignored these issues and had a very strong first half of the year. Vanguard's 500 Index fund (VFINX) returned 13.7 percent. Small and value stocks did even better: The Vanguard Value Index (VIVAX) returned 16.5 percent, the Vanguard Small Value Index (VISVX) returned 15.4 percent, and the Vanguard Small Cap Index (NAESX) returned 15.9 percent. Score: -1
Another sure thing was that Europe's recession and the slow growth in the U.S. would mean that the highest returns would come from the fastest-growing economies, specifically China. European stocks should be avoided.
The third sure thing was the inevitable rise in inflation due to the fiscal and monetary stimulus that continues to be injected into the economy.
The first five months saw inflation run at annual rates of 1.6 percent, 2.0 percent, 1.5 percent, 1.1 percent and 1.4 percent. Score: -1
Vanguard's Short-Term Bond Index Fund (VBISX) returned -0.6 percent, its Intermediate-Term Bond Index Fund (VBIIX) returned -3.7 percent, and its Long-Term Bond Index Fund (VBLTX) returned -7.8 percent. This "sure" thing held up in the second quarter. Score: +1
The fifth sure thing was that easy monetary policy and rising inflation would send the price of gold soaring. Gold closed the year at $1,656 and closed June at $1,192, a loss of 28 percent. Score: -1
The sixth sure thing was that you should seek the "safety" of investments with higher yields -- such as high-dividend stocks, master limited partnerships and real estate -- if you invest domestically.
Vanguard's REIT Index Fund (VGSIX) returned 6.3 percent, the Alerian MLP ETF (AMLP) returned 15.4 percent, and the SPDR Dividend ETF (SDY) returned 15.4 percent. That's an average return of 12.4 percent, below that of VFINX's return of 13.7 percent. However, since high-yield stocks are basically value stocks, the more appropriate benchmarks are value funds. VIVAX returned 16.5 percent, and VISVX returned 15.4 percent. We'll be generous and call this a tie, since MLPs and high-dividend stocks at least had comparable returns in the first half of the year. Score: 0
The seventh sure thing was that the road to riches is through ownership of Apple (AAPL).
AAPL shares closed 2012 at $529.09. It finished June at $396.53, a drop of 25 percent. It also underperformed the S&P 500 by almost 39 percent. Score: -1
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 Standard & Poor's Indices Versus Active Scorecard, but the arithmetic of active management provides us with the inevitable answer of it's never a stock picker's year. Still, we'll call this a tie for now. Score 0
So it turns out that just one of the eight sure things that were expected to occur actually did. Not exactly a good perfomance by sure things. Which brings to mind the adage, "It ain't what a man don't know as makes him a fool, but what he knows for sure but ain't so." We'll see if the same can be said for sure things in the third quarter.
Image courtesy of Flickr user bitterjug.