Many successful bond managers have had an off year in 2011, the most prominent being Bill Gross, who recently issued a “Mea Culpa” for his poor performance.
The same can be said for some equity managers, who have until this year had very good long-term results, for instance John Paulson and Bruce Berkowitz.
As I already commented, picking a manager based solely on past returns can really get you burned. It is more important to look at the process, whether or not it’s sustainable, and recognizing AND acting when it’s time to make a change. (Note: I am NOT recommending selling any of the above managers, just pointing out their poor returns as of late)
However, the lackluster performance by some of the industy’s best managers who had previously shattered their respective benchmarks points to how hard it has been to invest in the current market environment, due in part to the following:
- Continued consumer deleveraging
- Massive monetary and fiscal stimulus and then the removal of the stimulus
- Credit markets collapsing, then repairing, and now skittish again
- Emerging markets increasing importance and then the subsequent possibility of overheating
- Eurozone struggles
So if the best are struggling, how can the average investor help weather the storm? Here are some tips:
- Don’t make big bets , and don’t rely too much on one manager – avoid concentration risk by diversifying
- Develop escape routes before investing
- Take risk off the table when you get queasy
- Avoid drastic moves - if you make moves one way or the other, keep it small
- Hedge when and where it’s appropriate
- Don’t get emotional
