Last week, Motley Fool founder David Gardner made a spirited call to hold investing pundits to account in Moneyballing the Financial World. Here's my contribution, as I review four predictions I made at the end of last year -- and make a few new ones for 2012.
1. Stocks will outperform bonds: WRONG
Year-to-date return, stocks: 0.9% [S&P 500 Total Return Index]
Year-to-date return, bonds: 7.3% [Barclays Capital U.S. Aggregate Bond Index]
Unless stocks rally strongly to close out the year, there'll be no sugar-coating this one; I got it flatly wrong. Year-to-date, bonds have beaten stocks by nearly six-and-a-half percentage points (using a broad market bond index that includes U.S. government and agencies, corporate, and mortgage- and asset-backed securities.) That's not the half of it: While stocks were content to tread water, long-dated Treasuries produced a growth-stock-worthy 31% return!
I was looking for increases in share buybacks and M&A activity to lift share prices. Both of those things occurred. Companies in the S&P 500 bought back roughly $400 billion of their own shares in the 12 months to Sept. 30 -- a 55% increase over the prior 12 months. In dollar terms, acquisitions activity grew 15%. I also thought individual investors would return to stocks, which didn't happen.
2. Large- and mega-cap stocks will outperform small caps: RIGHT
Russell Top 200 Index
Russell 1000 Index
Russell 2000 Index
*At Dec. 22, 2011. Source: Russell Indexes
At the end of last year, small caps had beaten large caps by a whopping 4.5 percentage points on an annualized basis over the prior 10 years (that may not sound like much, but when it is compounded, it amounts to a real difference.) This year, small caps' reversal of fortune has reduced that margin to 2.4 percentage points.
Will this continue in 2012? I think so. The relative performance of different market capitalization segments is cyclical. The pendulum of small cap outperformance will swing back to zero -- that's ineluctable.
In addition, the high-risk and high-uncertainty macroeconomic environment favors larger, better-established names. Look for large-cap stocks to beat small caps next year, with the mega-cap segment beating both of them (i.e. the same performance ranking as this year). You can track my prediction in CAPS, The Motley Fool's investor-driven, stock-rating application. I'm going to rate the iShares Russell 2000 ETF 'underperform' and the Rydex Russell Top 50 ETF as 'outperform.'
3. Gold will break $1,600 and $1,150: PARTIALLY RIGHT
YTD High (closing price): $1,895
YTD Low (closing price): $1,319
YTD Return: 13.7%
I got this one half-right. Predicting that gold would break $1,600 in 2011 must seem like a slam-dunk in hindsight. The yellow metal smashed through $1,600 on its way to an all-time (nominal) high above $1,900 on the back of Europe's festering sovereign debt crisis. Since then, gold has lost much of its momentum and we are now back down around... $1,600. Despite a eurozone crisis that is far from over (among other problems), owning gold now is even riskier than it was at the beginning of the year. SPDR Gold Trust
4. Facebook goes public: WRONG
I thought for sure that Facebook would launch its initial public offering in 2011, arguing that "Facebook's employees and its venture-capital backers must be intensely impatient" to monetize the buzz surrounding the company and the broader social-networking sector. I overlooked early investors' ability to monetize their pre-IPO shares through private markets. There was a gold rush of social-networking IPOs this year, but Facebook remained above the fray.
Facebook's flotation is now expected for 2012. At the end of June, I predicted that the company would close its first day of trading in the public markets with a market capitalization above $150 billion. I still stand by that prediction today.
While we're on the topic, many investors will be able to share one experience: That of earning poor returns on social-networking stocks. I predict that an equal-weight, 'new-tech' portfolio of LinkedIn
My score is three out of six (numbers two and three actually contain two separate predictions), or 50%. It's nice to know that an expensive education, and much time and effort have lifted (lowered?) me to the same level as a dart-throwing monkey. Can you do better? Tell me if you agree or disagree with the new predictions I've made above or give me your predictions for 2012 in the comment area below.
Fool contributor Alex Dumortier holds no position in any company mentioned. Click here to see his holdings and a short bio. You can follow him on Twitter. The Motley Fool owns shares of Cisco Systems and Microsoft. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.