Callan Periodic Table

 Today I thought I would comment on an investor phenomenon routinely encountered by advisors called "selective diversification". 

Recently, I had more than one individual tell me that they wanted to hold off investing because they thought the US stock market was too high, while a colleague had an investor wanting to get of overseas markets because of recent events.  Callan, a investment consulting firm, releases their "periodic table of investements" every year.  It's purpose is to rank different investment categories each year by performance.  As you can see, in 2012 Emerging Markets (orange) took the prize, with Bonds taking last place in performance (green).  I really like this chart because it illlustrates the random and unpredictable nature of the markets, and that not all markets move together. For example,  winners may or may not repeat, and losers may, or may not become winners the following year.  For example, look at Emerging Markets in 1999.  They had been the worst performing class in the two prior years.  Now in 1999 they were first.  Was 2000 the year to jump on the bandwagon?  Nope, they were back to the bottom of the pack in 2000.  What about S&P500 growth stocks in 2004 (red)?  They had been a loser for the three prior years.  Time to get in?  Nope, they were in second last place in 2004-2006!  Emerging Markets in 2005-looks like time to head for the hills right?  History proved it was not.  They continued to perform well for two more years.

The lesson in this story is that "high" and "low" are very subjective.  What is happening today in any market doesn't give us a clue on what we should do tomorrow.

Fidelity's Ironic Announcement and True Independence

Today's post is a two for one. 

The first is a comment about a recent sales flier I got from Fidelity just a few days ago.  It stated that now may be the time for US Equities (stocks).  Inside the brochure it details the various reasons, such as a rebounding housing market and a resurgence in manufacturing that may take place.  I find it ironic that Fidelity makes this announcement now, as the DOW is sitting at a new all time high.  Where was this announcement in March of 2009?  This is an all too familiar theme in the investment industrial complex.  As a retail investor you are "sold" what feels right at the time and seems to make sense.  If Fidelity was really on your side, they would have been saying this forever, and especially in 2009. But, from a sales perspective what is easier, telling people to buy stocks in 2009, or trying to sell them something safe like bonds or some alternative investment like commodities?  There is a difference between giving investors what they want and what will sell, and telling what they need.  Sometimes doing what is necessary does not feel good at the time.

Also, today I had to laugh on the way home.  On a local channel I heard a wealth management firm advertise how it was "independent" and not beholden to any large national financial firms.  It wasn't influenced "by the manufacturers of financial products".  Sounds nice, doesn't it?  But, then comes the fine print.  Any investment office out there is either a) a brokerage office, or b) a fee based planner.  If they have a broker dealer, they ARE affiliated with a larger firm and DO sell financial products. This firm that claimed to be independent, is, in fact not.  They are an Linsco Private Ledger (LPL) office.  Thus, they have to do things that LPL says it must do.  Secondly, they DO then also sell manufactured financial products.  If they really wanted to act in the best interest of the client, they would not need a broker dealer.  The only reason you need a broker dealer is to collect commissions on the sale of commissionable products (financial products).  So, in short, this ad was a sham in my humble opinion.  The firm is not truly independent, and it also does sell the very products it pretends to eschew. Now, no one outside of the industry is going to be able to tell you about this distinction, but that is our mission at Veritas- Investor Education.  Catch our next class on March 28th.