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Sunday Journal
U.S. Stocks Wrap Up Another Strong Year
From the Wall Street Journal of Sat, 20 Dec 2014 23:40:41 EST
U.S. shares, including dividends, are up 11% so far this year, as measured by MSCI U.S. Stock Index.
U.S. shares, including dividends, are up 11% so far this year, as measured by MSCI U.S. Stock Index. Getty Images

While most of America’s children will find out in a few days who’s been naughty and nice this year, those trying to save a buck already have a pretty good idea.

No one in the investment world has to wait ’til Dec. 25 to start handing out mince pies or sacks of coal. The numbers are pretty much in.

It has, for example, been an extremely nice year on the U.S. stock market. U.S. shares, including dividends, are up 11% so far this year, as measured by MSCI U.S. Stock Index. To put that in context, since the mid-1920s stocks have produced average annual total returns of about 9.5%, according to data tracked by the New York University Stern School of Business.

More importantly, stocks this year have outpaced the official inflation rate by about nine percentage points—an astonishing gain in “real” purchasing-power terms, and far above the historical average.

Two S&P 500 stocks actually doubled in value this year: computer-games company Electronic Arts and budget airline Southwest.

A Smart Buy

Super investor Warren Buffett and his legion of dedicated fans will be ordering extra eggnog—possibly in the sage’s favorite “cherry” flavor—this year. Stock in Mr. Buffett’s Berkshire Hathaway investment vehicle have soared 27% since the start of the year, lifting the A-shares to a record $227,900. Arguably Mr. Buffett’s smartest investment in recent years has been his own stock: He began using company cash to buy Berkshire shares in 2011, when they’d tumbled as low as $100,000.

Among developed markets world-wide, only Israel, with a return of 23%, had a year that was nicer when measured in U.S. dollars. On the other hand, among the markets of developing countries there were a few that did as well. Congratulations if you had Bangladesh in the office pool: Measured in U.S. dollars, the stock market of the impoverished Asian country produced world-beating dollar returns of 48% in 2014, according to MSCI.

It’s also been a nice year for U.S. homeowners. The misery of the housing collapse is long over and the market continues to recover in most parts of the country, albeit at different rates. Rising employment and low mortgage rates have combined to drive up house prices and rents.

Furthermore, every price rise reduces the number of homeowners who are upside down on their mortgages—meaning they, in turn, are free to sell and move, unfreezing more of the market.

According to Zillow, the real-estate listings website, the average U.S. home price rose 6% in the year through Nov. 30, and the time each home sits on the market has continued to tumble.

More than 100 metropolitan areas have posted average price gains in the past year of more than 10%, ranging from Carson City, Nev., (10%) to Hilo, on the Big Island in Hawaii (19%), to LaGrange, Ga., where prices have gained 30%.

It’s also been a pretty nice year for bond investors. The Barclays U.S. Aggregate Bond Index is up 5.6% this year, a healthy gain for investments generally picked for their slow but steady returns. A year ago, everyone on Wall Street was full of doom and gloom for bonds, warning that inflation—generally lethal for bonds—was just around the corner. In the event, the longest-term bonds have actually produced the biggest gains.

It’s been a very nice year for motorists, too. But, of course, what’s good news for drivers is bad news for oilmen, who have had a very naughty year indeed. The price of gasoline has fallen 50% from its June high and oil 47%—the biggest rout in commodity prices since the 2008 crash.

If only it were all festive holiday cheer. Barbie, for example, has had a terrible year. Sales of the popular doll have tumbled, in part because young girls are clamoring for dolls related to the Disney animated movie “Frozen” instead, leaving manufacturer Mattel with piles of unsold inventory. Further troubles have driven Mattel stock down 35% in 2014, among the worst performances on the market.

And it’s been a tough year for Coach handbags: Growing competition from rivals like Kate Spade and Michael Kors have hit pricing and sales, and the stock has lost a third of its value this year. But what’s bad for the investor may be good for the consumer, as manufacturers across the industry slash prices to move product.

Speaking of consumers, more of them are avoiding the malls and doing their Christmas shopping in comfort from online retail behemoth But CEO Jeff Bezos’s aggressive drive for growth means he’s slashing margins and reinvesting revenues in the business.

Bottom line? While Amazon conquers Christmas, its investors have received nothing but sacks of the coal in the mail. The stock has lost more than a fifth of its value this year.

Other big names meriting sacks of coal include General Motors, hit by waves of damaging recalls, designer supermarket Whole Foods, and “Big Blue” IBM, all of which slumped by more than 10% in a year when the rest of the market boomed. Bah, humbug.

Pity the Bitcoin

And spare a thought for those who found a lot of bitcoins in their stockings a year ago. The digital “cybercurrency” was all the rage last winter, buoyed by hype and the promise that it would allow anonymous and secure online transactions world-wide. The first bitcoin ATMs began appearing, allowing you to buy bitcoins with cash in your local train station.

Alas, the collapse in February of a major bitcoin marketplace, an Internal Revenue Service ruling that made bitcoins taxable, and a simple unwinding of the hype have turned this into a very naughty year for the bitcoin investor. The cybercurrency has lost almost exactly half its value against simple U.S. dollars this year, according to data at, a bitcoin marketplace.

The good news? Thanks to the IRS ruling, you should be able to write off those losses on your tax return—so long as you kept your receipts.


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