2014 Retrospective

2014 Retrospective

Year in ReviewRegular readers of this column know I often discuss the four year presidential cycles and their effect upon stock market performance. Although I knew intellectually that 2014 had every statistical right to be difficult and negative—the worst of each cycle—that does not seem to help much if one is perfectionistic. Therefore, in perhaps only that one respect, I am really glad to see this year in the rear view mirror.

Remember the adage that Mr. Market will do whatever is necessary to confound the greatest number or proportion of investors and watchers. This was a perfectly confounding year.

If a stock investor had been Rip Van Winkle, sleeping from January 2nd until today, he would be happy to know that the S&P 500 index rose by about 12.5 percent, the Dow 30 by 8.5, and the NASDAQ 100 and Composite indexes even higher. But only if he was not very well diversified.

If he owned any foreign stocks, small cap stocks, gold or silver or oil commodities, floating rate income funds, even the Barclays Aggregate Bond Fund index, he would not have fared nearly as well. That is the primary difficulty of using any common benchmark in comparison to a well-balanced portfolio’s returns in the short term.

I can expect to be beaten about the head and shoulders by some who, in a 12 month period that happens to end on an upward note like this, think it should have been a slam dunk to beat or run neck and neck with one of these narrowly focused all-stock-all-the-time indexes. My answer is that 99 percent of investors should be frightened out of their wits if they had all of their eggs in even an index like the S&P 500.

But that is why many lost almost 40 percent of their investment value in the calendar year 2008. So use any index with a whole saltshaker, and go easy on your favorite investment advisor. No one has ever been in one single right investment at a time unless it was an accident. The stopped watch is actually correct twice a day. But the best news is that you do not have to experience that kind of result to be successful. The most important investing principle will always be to avoid loss if at all possible.

I will have more remarks soon about the winners and losers. In the meantime, the sneak peak for 2015 is this: by those same statistical probabilities tested during the past 80 or 90 years, the next year has the advantage of providing the best general stock market results of each four years.

With that, I wish you a happy and prosperous New Year!


(Past performance is no guarantee of future results. Advice is intended to be general in nature. Statistics from Worden Brothers, Inc., TC2000, 2014.)