I deal with the sensitive issue of ‘timing’ in both my books, and many (if not all) of my commentaries on this Website. One of the key warning signs I presented last year was when bigger organizations (usually run by big committees which chronically suffer from ‘group think’) begin to climb on board a given theme. In virtually all such instances, the theme is likely long-in-the-tooth and fast approaching a dangerous inflection point.
For example last year I posted this chart of the price of gold bullion with the arrow – the arrow indicated when central banks around the world finally thought it was a good idea to invest in (buy rather than sell) gold. Needless to say, once the cental banks decided to buy gold, it promptly fell from a high of roughly $1925 to a low of about $1525 (a -20% sucker punch).
Another indicator I value is the launch of investment funds and products that feature a theme. I ran across this ad recently which caught my attention (removing the company name since they’re nice people and very smart):
“……Funds has launched a Gold Share Class for the …… Performance Fund, positioning investors to benefit from a rising gold price.”
Investment firms are loathe to introduce (for reasons having to do with economics of course) any fund or investment product that isn’t going to sell well. I am not being cynical or critical – it just makes good business sense. Needless to say, the price of bullion has since recovered some of its lost ground – no doubt due to continued financial turbulence in Europe. Once again, both novice investors and investment committees will have been reading about the rebound and should be about ready to climb aboard the theme, even though each new “high” point in the price is lower than the previous one (suggesting a downward trend).
Meanwhile (see Markets Report Card) there have been and will be exceptional returns offered by individual stocks and conventional funds that are not being marketed aggressively. Many (if not most) of these investment products would have proven a disaster to those who bought them at launch time; and are too much work for the average investor to identify and invest in today. And as I’ve covered before…it’s the funds/securities with the lousiest prior performance (like gold back at $1525 or see Bad funds today, stars tomorrow!) that usually deliver the better future performance.
This pattern (I jokingly call Buy HI and Sell LO) is a conundrum for portfolio managers who are also owners of financial services firms. The asset/fund management company I once owned attempted to launch a number of counter-theme (or future-theme) investment funds which did NOT sell, but would have made a great deal of money for investors had they been interested. The timing (smart portfolio managers) was great for potential investment returns, but lacked the sex appeal – no coverage in the press, no juicy recent performance etc. – investors just weren’t interested. The bottom line is a business has to provide investors with what they want; even if what they want is the last thing they should buy.