This is the main headline of The Wall Street Journal today.
I wonder how all of the active money managers are feeling today after yesterdays mammoth sell off in their international small company and emerging markets funds?
They might be re-thinking their mid 2009 “inflight correction” to include more emerging markets in their portfolios.
Let’s not miss this!
Here is what happened to many portfolios this past year:
Early in 2009 as the market was headed down, a growth portfolio went from 75% stock exposure to a “more conservative” 70 or 65%. This made everyone feel better because it hurts to see stocks go down like they did in the first quarter.
Then the second and third quarters last year stocks were aquired again and this time in international emerging markets – I heard as much as 25% portfolio positions!
What are they recommending today? Selling off emerging markets is what I expect to hear. These managers are chasing returns, like the coyote chases the road runner – always a step behind.
Lets look at results:
The result of the early 2009 stock sell off by most mutual funds was that they now had fewer stocks in their portfolio when the market went on its 9 month tear last year. Oops.
A well diversified portfolio, rebalanced in March 2009 because the percentages were off and purchased stocks at rock bottom prices. When THEY were selling, YOU were buying – both domestically and internationally. Ahhh!
In the summer last year it became clear that emerging markets were having a great run. As this high return showed up in OUR portfolios as a higher than allowable percentage (normally around 5% in a growth fund) we were prepared to sell off some of those gains to the reactive buyers that were all lathered up and ripe for the selling. Ahhh!
Active managers purchased these shares AFTER the market had seen most of it’s return. Oops!
WE will keep you at your normal 5% allocation. You never know which asset class will be the next to rise quickly. Only new and unknowable information creates the future everyday.
We will also likely have buyers to buy whichever class of assets does well ‘after the fact’ – the news media will create them for us by “reporting” our gains and letting everyone know what they were missing out on. THEY will in-turn buy from us – just like they did twice last year.
Marketing timing comes in many forms – this tactical asset allocation method of chasing returns from one asset class to another is very prevalent right now and SO destructive.
Do not participate.