Doug Kass: 15 Surprises for 2013

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This column originally appeared on Real Money Pro at 7:15 a.m. EST on Jan. 7.


NEW YORK ( Real Money ) --

"Never make predictions, especially about the future."

-- Casey Stengel

It's that time of the year again!

It was a tough task repeating the success of my surprise list for 2011 over the past year.

This is particularly true since my most important surprise (No. 4) in 2011 -- namely, that the S&P 500 would end the year at exactly the same price that it started the year (1257) -- was eerily prescient. As well, in 2011 I basically nailed that the trading range over the course of that year would be narrow (between 1150 and 1300).

As we entered 2012, most strategists expressed a relatively sanguine economic view of a self-sustaining domestic recovery and an upbeat corporate profits picture but shared the view that the S&P 500 would rise but only modestly.

By contrast, I called for a much better equity market -- one capable, in the second half of the year, of piercing the 2000 high of 1527. As it turns out, the S&P 500 breached 1480 to the upside in the fall -- or about only 3% less than the 2000 peak. (In October, I concluded that the S&P 500's fair market value was 1415, and the S&P closed the year just 10 points higher than that figure.)

Before reviewing what else went right in my surprise list for 2012 (and what went wrong), I wanted to give some historical perspective on the lessons of the past, on the role of the consensus and what I am trying to bring to the table in the construction of the surprise list.

Lessons Learned Over the Years

"I'm astounded by people who want to 'know' the universe when it's hard enough to find your way around Chinatown."

-- Woody Allen

There are five core lessons I have learned over the course of my investing career that form the foundation of my annual surprise lists:

  • that uncertainty will persist;
  • to expect the unexpected;
  • that the occurrence of black swan events are growing in frequency; and
  • with rapidly changing conditions, investors can't change the direction of the wind, but we can adjust our sails (and our portfolios) in an attempt to reach our destination of good investment returns.
  • Consensus Is Often Wrong

    "Let's face it: Bottom-up consensus earnings forecasts have a miserable track record. The traditional bias is well known. And even when analysts, as a group, rein in their enthusiasm, they are typically the last ones to anticipate swings in margins."

    -- UBS's top 10 surprises for 2012

    Let's get back to what I mean to accomplish in creating my annual surprise list.