One of the biggest lessons I’ve learned over the past 25+ years is that investors tend to be "long term" oriented in their investment strategy as "long" as they are making money! It has been my experience that once losses start to crop up, it is truly amazing how quickly all those well meaning investors tend to get depressed, panic, and give up.
Up until recently, the mutual fund and financial planning industries chastised these finicky investors as being naive for succumbing to such a silly emotion as not wanting to lose money. The answer to all investment ills was to remember that you were investing for the long-term and a mountain of somewhat one-sided academic evidence proved that as long as you stuck with it, you usually did quite well in the stock market.
While the idea of "time, not timing" always raised the hackles of active investment managers or anyone trying to do something as ignorant as "buy low and sell high," the public bought the mountain chart story hand over fist and solemnly swore that they were "in it for the long term."
But that was then. That was BEFORE the tech bubble burst and cost anyone owing a growth fund about half of their investment. That was also BEFORE the Credit Crisis hit and turned 401(K)’s into 201(K)’s. And that was BEFORE people realized that their mutual funds and those set-it-and-forget-it asset allocation plans are still down BIG so far this decade. (And for those of you keeping score at home, we’re now more than 9.5 years into this decade - which, by most definitions, is probably considered long term.)
While it may be just my opinion, I will suggest one of the main reasons the hedge fund industry exploded over the past 10 years is that investors don’t like losing money. In short, hedge funds sprouted up and had dollars thrown at them by the billions because hedge fund managers could offer investors what they wanted – solid returns in any kind of market.
The snag was that since the hedge funds were largely unregulated, investors had to have substantial wealth in order to get in the door. Thus, the investment strategy that the vast majority of Americans REALLY wanted was unavailable to them. And as such, the public was stuck with the buy-and-hold mantra that was being fed to them.
I will also opine that maybe, just maybe, the investing public has had it right all along. Let’s face it; losing money is NOT fun! And hey, what’s wrong with "buy low and sell high" anyway?
An Old Idea Whose Time Has Come
Two weeks ago, I wrote a "Big Picture" piece entitled The New Normal: An "Absolute" Objective. The point to the article was I believe it is time to think differently. It is time to abandon the concept of relative return (performance that is based on and compared to the S&P 500 or some other benchmark index) and concentrate on the idea of "absolute return."
I’m guessing most readers will agree that the concept of making money in any and all environments sounds like a great idea. And I’ll also bet that at least a handful are saying, why isn’t this approach being used now?
As I pointed out last time, up until VERY recently the average investor didn’t have access to the tools necessary to play the "just win, baby" game. There simply weren’t liquid investment vehicles for the average investor to take positions in various countries, indices, sectors, themes, commodities of all shapes, colors, and sizes, currencies, bonds, or an inverse version of all of the above. Yes, you could gain access to these arenas in the past, but it most definitely wasn’t easy and/or inexpensive.
However, the good news is that the wide, wide world of ETF’s (exchange traded funds) has changed all that! Nowadays, you can invest in just about anything at any time – and do so at any point during the trading day. For example, if you think the BRIC countries are the way to go, you’ve got your choice of a handful of ETF’s to choose from (we currently own the EEB). Or if you only want half a BRIC, you can invest in "Chindia" (China and India) via the FNI (which I own, by the way). Or, if you only want either China or India, you’ve got a bunch of ETF’s to review. Do you like real estate in Japan? No
