2011 Winners Can Make You a 2012 Loser
Everyone wants to pick this year’s winning asset class/fund.
In 2011 it was investors in UK government gilts that did great, being up 16.00%. Index-linked gilts did even better, rising by almost 20% in the past year.
In contrast anyone investing in the stock market, both domestic and foreign, would find 2011 tough going. With the notable exception of the US virtually every other stock market was down, with some faring particularly badly such as Emerging Markets which fell by 19%.
With the benefit of hindsight, the best advice for 2011 investors would have been to stay out of Emerging Markets and get into gilts in a big way.
The problem is that if we were lucky enough to get this particular call right what do you do in 2012? And then in 2013 and then in ……you can see where I am going with this one, can’t you?!
We just need to look back at 2009 and 2010. Then Emerging Markets was pretty much the best performing asset class with Gilts looking decidedly dreary in comparison.
Of course, as we all know the overwhelming evidence is that no one can accurately and consistently predict which asset classes (much less which shares or funds) will perform well in the future.
Even with this knowledge this hasn’t deterred many so called “experts” from making predictions for 2012. So not wishing to be left out here are my predictions for this year:
1. A majority of misguided investors will continue to believe that active fund managers (and stockbrokers) have the ability to pick outperforming shares and actively managed funds and to provide guidance on “what is happening” in the market;
2. A minority of investors will re-assess their investment strategy and invest in a globally diversified portfolio of low management asset class and index tracking funds in an asset allocation appropriate for them;
3. Over time, the returns of the minority of investors described in #2 are likely to outperform those of the majority of investors described in #1;
4. The primary beneficiary of perpetuating the myth that fund managers and financial pundits can predict the future will be those dispensing this advice. The victims will be those relying on it.