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The Biggest Surprise of 2012

We asked some of our top analysts: "What was the biggest surprise of 2012?"

Their responses start off with not one, but two South Korean phenomena.

Alex Dumortier, CFA: Biggest surprise of 2012? How about a Korean pop song -- Gangnam Style -- becoming the most popular YouTube video of all time, garnering close to a billion views in the process? There are two lessons here:

  • Just as Asia is gaining global market share economically, we should expect it to become increasingly influential culturally. Certain youth "tribes" in the U.S. already follow Japanese and Korean popular culture closely, but cultural imports like "Gangnam Style" could become increasingly mainstream.
  • The numbers involved show the astonishing speed at which the web can open up -- indeed, create -- a global market for certain products. I'm not particularly a fan of Facebook (NASDAQ: FB  ) , and I tend to think the shares remain overvalued today, but it has been tremendously successful at harnessing that dynamic (it is, of course, a powerful agent of the same dynamic). How else does a company go from zero to being valued at tens of billions of dollars in less than a decade? Creating wealth at that rate was simply unfeasible a generation ago.

Anders Bylund: As if Psy's Gangnam Style wasn't enough, South Korea played host to yet another revolution.

A year ago, Apple (NASDAQ: AAPL  ) ruled the tablet computer market with an iron fist. iPads stood for a commanding 60% of global tablet shipments, according to research firm IDC. Today, the iPad slice of the tablet pie has shrunk to just 50.4%. The Android army is stealing Apple's market share, led by Korean giant Samsung, which more than quadrupled its tablet sales year over year.

I'm a longtime Android user and occasional Apple critic, but I did not see this coming. The iPad looked set to rule the tablet roost for another couple of years, leaving Androids to fight for the smartphone segment instead.

Is the iPad simply losing its premium luster, or have Samsung and friends figured out how to make, market, and sell credible competitors? You tell me. Either way, maybe it's no coincidence that Samsung runs this global threat from headquarters in the Gangnam district of Seoul.

Dan Caplinger: Stock market volatility defied expectations by remaining tame all year long. Even during the spring, when concerns about Europe reached their peak and markets fell sharply, the S&P 500 Volatility Index (VOLATILITYINDICES: ^VIX  ) didn't rise nearly as much as it had during similar bouts of uncertainty in 2011, and during the year's rallies, volatility has fallen to levels not seen since before the 2008 financial crisis, crushing investors in the volatility-tracker iPath S&P 500 VIX Short-Term ETN (NYSEMKT: VXX  ) .

With the fiscal cliff looming, Europe's problems still unresolved, and emerging markets still suffering slowdowns, the lack of volatility is especially surprising. With so much complacency, investors seem more greedy than fearful, and to me, that suggests it's time to start looking at ways to protect your portfolio from the next downturn -- whenever it comes.

Alex Planes: I don't think I'm the only one who's been surprised by the all-but-total irrelevance of the Occupy movement in 2012. Occupy captured everyone's attention in 2011 as ever-greater numbers camped out in New York's Zucotti Park and in other cities around the country. Protests in other countries even started chanting Occupy's "we are the 99%" rallying cry. The Fool devoted front-page coverage to Occupy throughout the fall, which included our managing editor visiting Zucotti Park to understand what was driving the movement.

After the police cleared Zucotti last November, the movement more or less disintegrated into self-parody. The first big Occupy action of 2012, "Occupy Congress," barely merited media attention. A reunion of sorts on Occupy's six-month anniversary was thinly attended and notable only for frequent arrests. A reboot focused on debt forgiveness has done virtually nothing. Protests organized against Wal-Mart (NYSE: WMT  ) for the holiday season have looked laughably ineffective. I expected leadership to stand up and declare a new focus, but no one has been willing to assume leadership -- and if anyone did, the Occupy mind-set might simply reject them, anyway.

Meanwhile, media discussion of the 1% has been focused in 2012 almost entirely on whether the highest earners should see their taxes return to Clinton-era rates, which is probably not what Occupy had intended to highlight with its protests in the first place. Feeble antibusiness efforts, including "strikes" against small businesses as well as protests against multinational corporations, are also muddying the original message of economic fairness. This message is certainly worth debate as our feeble recovery drags on into its fifth year, but Occupy hasn't been the right messenger.

Rich Smith: The big surprise for me in 2012 is... still surprising me today. It's the fact that despite debt defaults in Europe, and continual threats of more of the same (and not just Europe), despite 92 out of 500 companies in the S&P 500 having already lowered their earnings guidance for Q4 (versus just 25 raising guidance), despite worries over an approaching fiscal cliff and the risk of sequestration, the stock market is actually up 12% so far this year.

Talk about climbing a wall of worry!

Tim Beyers: When Robert Downey Jr. agreed to play armored superhero Iron Man in a film of the same name, no one really knew what to expect. Even after the film made more than $300 million at the domestic box office, some doubted the superhero meme would live on in theaters for more than a year or two.

Fast-forward to this summer. Downey once again reprised his role as the armored avenger, his third time on screen in that capacity. Only this time, the results more than pleased audiences. This time, an ensemble cast set a new box office record (i.e., the largest weekend gross in history) on the way to $1.5 billion in ticket sales. That's how big Marvel's The Avengers was this year.

No one saw it coming. No one, that is, except for Walt Disney (NYSE: DIS  ) chief executive Bob Iger, whose $4 billion purchase of Marvel Entertainment in 2008 today looks like the sort of steal you only get in a heist film.

Morgan Housel: Exactly a year ago I interviewed half a dozen well-known economists, investors, and journalists. I asked each one what worried them most as we headed into 2012. Without fail, every one said Europe, Europe, Europe. It was hard to argue with them.

What's surprised me the most about 2012 is that, unless you lived in a periphery European country, the region's fiscal madhouse hasn't been much of an issue for global markets. There was a deep scare in the late summer, but for most of the year I think policymakers handled the issue much better than nearly anyone imagined. This story is far from over and could change any day, but it was a good lesson in realizing that what seems obvious and a sure thing sometimes isn't. 

Selena Maranjian: Biggest surprise of 2012? President Obama's re-election and how right political statistician Nate Silver turned out to be, when he trusted numbers. It shouldn't have surprised anyone, though, because of... math.

There's a lesson here for investors as well as election-watchers. Numbers matter. If you're excited about a company you're reading about and think it's headed to the moon, be sure to ground your hopes in a review of some of its numbers. Are its revenue and earnings numbers rising briskly -- or, gulp, are its debt and share-count numbers doing so? Profit margins and price-to-earnings (P/E) multiples are simple ratios. Fat profit margins suggest pricing power. Low P/E ratios (relative to a company's peers or its past numbers) suggest an attractive valuation.

Meanwhile, are you basing your retirement on savings in CDs? Have you run the numbers, to see what 2% growth over 20 years will do for you? It won't even double your money. Add long-term stocks to the mix, and if you average 7% growth over 20 years, you'll nearly quadruple your money. Look beyond stock stories and financial dreams to the numbers. They can tell you a lot.

Chuck Saletta: The biggest surprise of 2012 has to be the dramatic increase in U.S. domestic oil production. According to the U.S. Energy Information Agency: "The expected 760,000 barrel-per-day increase in U.S. crude oil production this year is the largest rise in annual output since the beginning of U.S. commercial crude oil production in 1859." With the increase, U.S. crude oil production has reached 6.5 million barrels per day, a rate not seen since 1998, nearly 15 years ago.

Much of that increase can be attributed to non-conventional shale reserves and hydraulic fracturing -- or "fracking", as it's often called. There's an old saying that "The cure for high prices is high prices." As this year's increase in U.S. oil production has shown, that saying has more than a small kernel of truth in it.


Read/Post Comments (7) | Recommend This Article (52)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 14, 2012, at 4:06 PM, fabmarch53 wrote:

    Sure, the biggest surprise in 2012 for me has been the low volatility. Despite a Greek default real possibility, China' s slowing growth and Middle East turned in a barrel of nitroglicerine, no potential "black swan" event has affected much a very resilient, indifferent and stable CBOE VIX. But beware: all this can change overnight! Cheers.

  • Report this Comment On December 14, 2012, at 5:54 PM, dwatson102 wrote:

    The biggest surprise for me in 2012 is the relative valuations of Apple vs. Amazon. P/E of 11 vs 470.

    What does this market know that is reflected in these numbers. Is Amazon really going to increase their profits by 42X to close that gap? Really?

    Or are Apple earnings going to dip to a couple $ per share from $45? Maybe, but I doubt it. So much for Mr. Market being wise.

  • Report this Comment On December 14, 2012, at 6:35 PM, meatmog wrote:

    To respond to Tim Beyers. Disney's purchase of Marvel was no surprise to me. i have been posting on this subject for years now. What was missing in the DIS portfolio was the ability to attract and engage the tweenage market. Disney's core characters resonate with families but were largely seen as uncool by this demographic.

    Hollywood has realised like the pop music boom of the 50's and 60's that this age group creates fanatic flagwavers with a passion that can last a lifetime, Moreover it is passed down through the generations. This is the Zeitgeist for Marvel based properties and the vision they showed was a threat to Disney's core business as it threatened to render them a spectator in a boundless superhero market.

    Marvel's vulnerability was the initial financing of it's movie projects. Had they realised the Avengers numbers independently of Disney the deal would have been more like 6-8 billion instead of the 4 billion they got if the deal was even made at all.

  • Report this Comment On December 14, 2012, at 8:25 PM, BHOmustGO wrote:

    Well, let's see. The Japanese copied Leica and they have done real well. Samsung has copied Apple, so they are doing quite well. It's really easy to do well when you copy a success and then add some more bells and whistles to make it your own. I doubt if Samsung would have ever come up with any product close to Apple's on their own. Reverse engineering is wonderful, isn't it?

    As for the idiot who did Gangnam Style, he got caught saying some vile, reprehensible things about our fine miltitary personnel and had to apologize (apology not accepted here) because he was exposed. Always works that way doesn't it? Get caught, you apologize. Then he performs in front of Obama, who should have asked for him to be removed from the program.

  • Report this Comment On December 14, 2012, at 11:51 PM, asf2 wrote:

    Thank goodness the OWS movement faded away. As someone who works in downtown Manahattan, they became a nuisance to the hard working middle class trying to get to and from work. They found a way to alienate those people they were trying to communicate with. And when they stayed in Zucotti park for several months - not attending school, not working - who has respect for people playing the drums and "chillin" all day? I noticed they helped out after Sandy, but some of them should have taken leadership courses - in school..

  • Report this Comment On December 19, 2012, at 6:24 PM, mikecart1 wrote:

    Biggest surprise:

    People still pay attention to the "jobs report" every Thursday.


  • Report this Comment On December 22, 2012, at 12:48 AM, stillEdInvests wrote:

    I find the whole thing odd. US companies are strong, lean, and produced good revenues regardless of Europe, and the market responded. They are now in a position to move higher as the US recovers and takes Europe with it. I think 2013 will be a good year, It will take awhile to undo the past, but we are doing well. I will sell losers early next year, and invest in far better things. I worry none about the cliff.

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