The 2014 Financial Market Awards

The votes have been tallied. Here are the financial market award-winners for 2014:

Comeback Player of the Year: Real Estate Investment Trusts (REITs)

After a very minimal gain in 2013, REITs are up almost 32% this year.

Lifetime Achievement Award: Warren Buffett

Remember when Buffett was finished and couldn’t be expected to outperform anymore? People seem to write him off every few years, but Berkshire Hathaway is up over 28% this year versus a gain of 15% for the S&P 500. Berkshire stock has doubled since 2011. Buffett’s still got it.

Best Streak: 6 up years in a row for the S&P 500 (including dividends)

Going back to the late-1920s that would be tied for the third longest streak of all time. The longest streak was from 1991 to 1999 when the market reeled off 9 years of gains in a row. The second longest run of positive annual returns were from 1982 to 1989 when stocks rose for 8 straight years. Not only is the S&P up 6 years in a row, but it’s also up 11 of the past 12. In those 12 years the S&P 500 is up 9.6% per year, right at the long-term average.

Worst Streak: Dennis Gartman’s forecasting record.

Gartman had a tough time, to say the least, with his market calls this year (via Morgan Housel):

At least he admits when he’s wrong.

Biggest Winners: Biotech stocks (+36%), India (+27%), Long-Term Zero Coupon Treasuries (+46%)

The past 5 years of annual returns in the bio tech ETF (IBB) are amazing: 35.8%, 65.5%, 32.1%, 11.7% & 14.8%. India is one of the few bright spots in the emerging markets, outperforming the broad index by over 30% this year. Zero coupon long bonds are extremely volatile, but when rates fall they really take off.

Biggest Losers: Russian Small Caps (-52%), Greece (-39%), Commodities

Russia has been crushed by the decline in oil prices and a falling currency, while Greece continues to feel the effects of a severe depression-like economy. Meanwhile, a diversified ETF of commodities is down anywhere from 28% (DBC) to 18% (DJP), depending on the exposure to oil.

Best Actor: Bitcoin acting as a legitimate currency.

It’s down 57% this year.

Best Screenplay (Narrative): “The U.S. is the cleanest dirty shirt in the laundry hamper.”

People have mocked this one for years but it’s worked so far. The U.S. dollar is up double digits. The Fed has yet to blow up the financial system. Interest rates are down. Gas prices have been nearly cut in half. GDP growth was up an annualized 5% in the third quarter and has been greater than 3.5% in 4 out of the past 5 quarterly readings.

The U.S. trade has worked brilliantly over the past few years for those positioned with a heavy allocation to U.S. stocks. So many investors thought U.S. stocks were overvalued and due for a breather at the end of 2012. Fast forward two years and over 50% in gains and the U.S. continues to dominate, frustrating those on the sidelines and invested in globally diversified portfolios, alike.

Worst Screenplay (Narrative): “How to invest in a rising interest rate environment.”

Someone forgot to tell that to U.S. long-term treasury bonds that just had their 5^th best performing year of all-time from falling rates. Also, the best performing sector was the rate-sensitive utilities, up nearly 34%.

Best Picture: Bill Gross

This one was easy – Bill Gross at the Morningstar Conference (via Michael Kitces):

Best Headline of the Year: Actresses and their asset allocation choices.

But what does Mila think about a return to 1970s-style highly inflationary environment from her time on That 70s Show?

Best Make-up: 2014 is going to be a stock-picker’s market.

Or not. Actually, if you picked just the largest stocks in the S&P 500, you did all right. The top 5 stocks in the index were up an average of almost 20% and accounted for 17% of the gains this year.

Best Short Film: The October market sell-off.

The roughly 10% loss was wiped out in about 2 weeks and anyone not paying attention to the markets in the month of October would have never realized that market participants were freaking out about the prospect of a bear market.

Biggest surprise: ???

The easy answer here is the crash in the price of oil, but at this point nothing that happens in the markets should be a surprise to anyone. The past will always seem like it was much more certain than it actually was in reality and everything that happens in the future that people aren’t expecting will shock the majority of investors. You should be surprised if a year goes by when you’re not surprised about something. As Derek Hernquist said in a post earlier this year, “the only truth in markets is surprise.“

Further Reading:
2013 Lessons Learned