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.
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