|
|
|
|
|
|
| |||
|
|
|
Wednesday January 9, 6:29 PM
Are we all irrationally exuberant sheep?By dollarDEX
The success of a contrarian investing strategy requires the investor to go against gut reactions, and against the prevailing beliefs in the general market. Going against the crowd, is not easy to do. This is why most investors dont do it. Thats the belief of the Contrarian Investing Association, an investment club that was founded in Toronto, Canada. And they could have a point, if their 43% return on their stock picks last year is anything to go by. The problem is most people are irrationally exuberant -- they see a positive upward trend in markets, and they try to ride that trend ever higher. But usually the upward trend doesnt last much longer, and the bulk of investors are left with egg on their face, and heavy losses. Analysis
reported in the UKs Daily Telegraph bears this out. Charts from the UK
office of Schroders, the fund manager, confirm that investors chase good
performance, no matter where, or in what, a fund invests. Schroders saw
increased sales in a particular fund sector when or after the sector was
performing well; when performance falters, sales nosedive
too. According
to Paul Farrow this behaviour is easy to observe: Take the pattern of
sales of Schroders' Far East fund (excluding Japan) over the past 10
years. Sales in 1993 doubled from 1992's level, and in the same period the
average Far East fund more than doubled in value. Between 1995 and 1996,
sales of the Schroder fund rose by 35 per cent at a time when the value of
the average fund jumped by more than 60 per cent. Yet in 1998, when the
value of the average sector fund fell by 50 per cent, sales of the
Schroder fund also halved - only to return to favour a year later after
the sector performance soared. And in Singapore its easy to see the same herd reaction investors piled into technology funds during 2000, and then capital protected funds last year. But research shows that top funds very rarely stay top. So what's the point of ranking the past performance of funds? The answer may be: there is no point, and all those fund awards or recommendations are meaningless, or even misleading. (However, it could be true to say that a fund that consistently does badly against its peers is one to avoid). Here's some data that shows how frequently the top fund changes, and thats not even comparing different sectors, which would very even more.
| ||||||||||||||||||||||||||||||||||||||||||||||||||
