< Back to blog
Yogi Berra with quote
4/16/19 | Market Updates Personal Finance

Deja Vu All over Again

Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities.

Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.”

WHAT’S HOT BECOMES WHAT’S NOT

Looking back at some investment fads over recent decades can illustrate how often trendy investment themes come and go. In the early 1990s, attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan. A decade later, much was written about the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets. Similarly, funds targeting hot industries or trends have come into and fallen out of vogue. In the 1950s, the “Nifty Fifty” were all the rage. In the 1960s, “go-go” stocks and funds piqued investor interest. Later in the 20th century, growing belief in the emergence of a “new economy” led to the creation of funds poised to make the most of the rising importance of information technology and telecommunication services. During the 2000s, 130/30 funds, which used leverage to sell short certain stocks while going long others, became increasingly popular. In the wake of the 2008 financial crisis, “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded. As investors reached for yield in a low interest-rate environment in the following years, other funds sprang up that claimed to offer increased income generation, and new strategies like unconstrained bond funds proliferated. More recently, strategies focused on peer-to-peer lending, cryptocurrencies, and even cannabis cultivation and private space exploration have become more fashionable. In this environment, so-called “FAANG” stocks and concentrated exchange-traded funds with catchy ticker symbols have also garnered attention among investors.

THE FUND GRAVEYARD

Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world.

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured.

WHAT AM I REALLY GETTING?

When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

1.  What is this strategy claiming to provide that is not already in my portfolio?

2.  If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?

3.  Am I comfortable with the range of potential outcomes?

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. Within equities, for example, a market portfolio offers the benefit of exposure to thousands of companies doing business around the world and broad diversification across industries, sectors, and countries. While there can be good reasons to deviate from a market portfolio, investors should understand the potential benefits and risks of
doing so.

In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals.

CONCLUSION

Fashionable investment approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets.

Midwest Capital Advisors

Investment fads are nothing new.

When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities.

More MCA Insights

Jack GRBJ blog
10/16/18 | Personal Finance

How do I know who can get me to retirement?

There are a myriad of financial advisors with shingles out in every community and choosing the right one can be overwhelming.

Read...

april_2018_image.jpg
4/12/18 | Personal Finance

Qualified Charitable Distributions Good Option for Those over 70 1/2

Qualified Charitable Distributions (QCDs) allow an IRA owner over the age of 70.5 to donate up to $100,000 annually to a charity tax-free. A QCD is removed from your total IRA distribution thereby moving your charitable contribution “above-the-line” from what would otherwise be a “below-the-line” deduction.

Read...

scissors
12/21/17 | Personal Finance

What does the Tax Cuts and Job Acts (TCJA) mean for you?

By Jack Nicklaus Tunge, CFP®, CRPC®

On December 15th, a House and Senate Conference Committee released a unified version of the Tax Cuts and Jobs Act. The bill passed the House by a vote of 227 to 203 and the Senate by a vote of 51-48 on December 19th. President Trump could sign the bill into law very soon but will most likely wait until January (find out why here). The following provides a brief overview of the changes that will affect individuals and, more likely than not, become law.

Read...

dollar garden
11/20/17 | Employee Benefits Personal Finance

Maximum Allowable Contributions 2018

The latest IRS information concerning Maximum Allowable Contributions (MAC) limits for calendar year 2018.

Read...

Retirement Just Ahead
9/6/17 | Personal Finance

Preparing for Retirement. Ever Wondered What a CERTIFIED FINANCIAL PLANNER™ Does and How They Can Add Value?

​Midwest Capital Advisors’ own investment adviser representative, Jack Tunge CFP®, CRPC®, shares an example of how he adds value to his client relationships.

Read...

Wedding
6/15/17 | Personal Finance

Big Wedding or Big Retirement?

Destination Wedding or Fully Funded Retirement?

Something to think about

Every year I am invited to 3 or 4 weddings and I love attending every one. But I’ve noticed a few trends lately and I thought I would put together some things for today’s couples to think about as they are about to tie the knot. Here is what I found:

Read...

Bear and Bull
3/14/17 | Personal Finance

March Madness and the Dow

Newspapers, radio, and TV news programs refer to the Dow Jones Industrial Average every day, calling it the Dow, sometimes the Dow Jones or even the DJIA. And economists and financial advisors pay close attention to its daily changes and the longer trends. But what exactly is the Dow Jones Industrial Average, does it really matter and can one see performance patterns from year to year?

Read...

HSA doctor and piggy bank
1/16/17 | Employee Benefits Personal Finance

Triple Tax Benefits of Health Savings Accounts

When planning for retirement, most Americans think mainly about using tax-advantaged savings vehicles like 401(k) or individual retirement accounts, while failing to consider the triple tax advantages associated with saving for future health care costs using a health savings account, or HSA.

Read...

portal screen
12/22/16 | Personal Finance

NEW Client Portal

We are pleased to announce a new technological enhancement for our wealth management clients.

Read...

Trump at Podium
11/15/16 | Market Updates Personal Finance

What does President Trump mean for investors?

​How political parties affect the markets and the economy

Now that the 2016 presidential election is over and we can refer to Donald Trump as President Trump, it’s time to examine some additional questions.

Read...

10/24/16 | Market Updates

The Fed

Even casual observers of financial news know that “Fed watching” is a serious activity in the financial and business communities. Currently, Janet Yellen is Chair of the Board of Governors of the Federal Reserve System, commonly known as the “Fed.” An understanding of the establishment of the Fed, its basic operation and powers, and its relationship with the Federal government and the banking community is especially important at a time when the direction of the economy is under constant scrutiny.

Read...

vacation
8/29/16 | Employee Benefits

Investing in Your Vacation

Why do so many of us not use our vacation days? Salespeople talk about “leaving money on the table.” Well, employees leave vacation on the table. And the cost to us is significant.

Read...

7/28/16 |

Fiduciary Rule

You have probably read about the U.S. Department of Labor’s (DOL) new fiduciary rule that will impact financial advisors and their clients. Simply stated, the DOL’s new “fiduciary duty” standard requires financial professionals ...

Read...

sunflower
7/21/16 | Personal Finance

10 Reasons to be Cheerful

Do you ever listen to the news and find yourself thinking that the world has gone to the dogs? The roll call of depressing headlines seems endless. But look beyond what the media calls news, and there also are a lot of things going right.

Read...

steps_to_Lake_MI1.jpg
7/5/16 | Employee Benefits

Boosting Benefit Plans with Roth 401(k)s

As you may already know, offering a retirement savings plan can help your business attract and retain employees, while making it easier for you to save for your own retirement. To support these objectives, business owners may want to consider adding a Roth option to their 401(k) plans. As the name suggests, the Roth 401(k) incorporates elements of both traditional 401(k) plans and Roth IRAs.

Read...