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Thus the first lesson for surprise number one is that we don’t live in a world of normalized distributions (think of the bell-shaped curve). We live in a far more unpredictable world where

extreme events happen on a semi-regular basis.  The next lesson is that bonds still have less risk in a year than stocks have in a day. Though the 13.2 percent loss in bonds for the year is

an extremely unusual event, it is less than the 20.5 percent suffered by the Standard and Poor’s 500 stock index on Black Monday, Oct. 19, 1987. The third lesson is that losses in bonds can

be a good thing. Bonds lose value for two reasons: The issuer is in financial distress and may default on its payments, or interest rates surge. The former wasn’t the case in 2022, but

rather the latter. Bonds lost value because interest rates surged. I explain why this happens in bond basics, but it’s essentially because people now want a higher interest rate return on

their bonds, making existing bonds and bond funds with lower yields less valuable. That’s what happened in 2022. So the good part of this is that we can now earn far more on our bonds. 

Investment-grade bonds yielded 1.51 percent going into the year but closed the year yielding 3.88 percent. Today, you can buy a five-year bond known as the Treasury’s inflation-protected

security (TIPS) that is guaranteed to beat inflation by 1.66 percent annually, whereas last year it was guaranteed to underperform inflation by 1.61 percent annually. TIPS are now even

better than I bonds.  2. THE SECOND SURPRISE IS THAT INTERNATIONAL STOCKS FARED BETTER THAN U.S. STOCKS.  International stocks lost 16 percent but bested U.S. stocks by 3.5 percent for 2022,

and by a whopping 7.5 percentage points over the last quarter, surging 14.7 percent, all while the rest of the world was dealing with the economic aftermath of COVID and Putin’s invasion of

Ukraine, a conflict that now seems likely to continue for some time. This has had a huge impact on other countries, especially in Europe. China seems to be more at odds with the West, and

increasing worries about its invading Taiwan don’t help. Overall, the U.S. dollar gained 7.9 percent against world currencies, yet international stocks fared better than the U.S. Typically,

foreign stocks do better for U.S. investors when the dollar is weak. The lesson for surprise number two is that markets baffle us. Even hindsight can’t always explain the past. In other

words, you were not crazy to own international stocks.