Strategically located a block from my high school, lurked a pool hall readily luring innocent students from their studies. While it was busiest during lunch hour and après school, business remained brisk during school hours. Must have been students on their spares!
At its entrance stood a bank of pinball machines, always busy and always with a ring of fans ready to take over when someone’s quarters ran dry. While my game was pool, I marvelled at how skilled pinball players kept the ball bouncing around the machine endlessly.
Markets last year behaved much like the ball inside the machine, requiring a “supple wrist” to navigate. The S&P 500 had a record number of months with changes of five per cent or greater. Month-to-month percentage variations were January -5.2, February -3.2, March +3.6, April -8.8, May +0.2, June -8.7, July +9.1, August -4.2, September -9.3, October +8.0, November +5.4 and December -5.9. Eight months with more than a five per cent change. Does the ball get nauseous?
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The S&P 500 concluded its worst year since 2008, with a loss of 18.1 per cent. The TSX was more stable and performed better as resource stocks staged a comeback. Our domestic market experienced a loss of 5.8 per cent. Bonds, normally expected to stabilize portfolios, provided little relief as U.S. bonds experienced one of its worst years, declining 12.7 per cent.
A standard 60/40 portfolio of stocks and bonds had its third worst year on record, trailing just 1931 and 1937. It was the first year U.S. markets experienced double digit declines in both stocks and bonds. While a tough year for many market participants, from a positive standpoint it was a year that separated investors from traders and speculators.
My newsletter and personal portfolios performed much better than market averages. Our TFSAs were up (that’s correct … up) marginally at 0.8 per cent, while the model RRSP portfolio was down just 0.8 per cent. My regular account that combines stock and option strategies was down slightly more at 4.6 per cent. This wasn’t near as much fun as 2021, when we were up 24.3, 28.8 and 53.6 per cent, respectively, but was one of my best years from an across-the-board market outperformance standpoint.
How did my 2022 predictions pan out?
- My first prediction was most predictions would be wrong. This is always an easy prediction and I have a couple of illustrative examples. In September of 2021, the U.S. Feds projected one interest rate increase for 2022, which they revised to three in December. In fact, seven increases occurred totalling 4.25 percentage points. Canadian rates followed a similar path. The folks responsible for the changes were dramatically off the mark.
As well, I ran into a chart showing the average of Wall Street analysts’ projections for the past 23 years. Four years were close, but 12 years had results more than 10 per cent away from the prediction, with the biggest gap being 2008 when an eight per cent projected gain came in with a 37 per cent loss. I could not see any correlation between prediction and outcome.
- Second, I predicted greater volatility, a move from speculative and high-growth stocks to value stocks and the S&P 500 would end about flat. I was correct on two of three factors and was off on the final S&P 500 level. The prediction was, however, reflective of our portfolio performance.
- Third, I predicted robust commodity prices, that the hated energy sector would bail out the Canadian economy and our market would outperform the American economy and be up “in the teens.” I was correct on all factors except, once again, I was overly optimistic on final market performance.
- Fourth, I did not foresee a recession and predicted inflation would stay well above central bankers’ target rate exacerbating wealth and income inequality but subdue later in the year. In my newsletter I wrote, “Politicians will hide from economic reality and discourage rate hikes but in the end central banks will be forced by inflation to increase rates.” Can you hit the nail any more squarely?
My next article will include 2023 prognostications and I will now conclude with the performance of the Titanium-Strength Portfolio. Like my own, it was almost flat on the year with a minor 4.2 per cent loss, still up 46.3 per cent in 4.5 years. Like last year, I will use most of the dividends to add 30 shares of BCE (Bell Canada Enterprises) and five shares of DIS (Walt Disney Company) at the December 31 closing price.
