Woe Is The Asset Allocator?

by: Roger Nusbaum

Josh Brown posted the following quote with the context being that this was from an investment manager who is an asset allocator:

"I'm at a conference with hundreds of asset allocators and PMs. Everyone's got a global portfolio up 3 or 4 percent. They're f***ing miserable."

Domestic equity indexes are up a lot this year and most everything else is either up a little or down including fixed income. There were also other quotes in Josh's post lamenting the way things have shaken out year to date. It has been a rough year for our portfolio too in terms of lagging the index.

Clearly owning foreign has generally been wrong tactically but this has been clouded by the economic fundamentals here versus select other countries . Consensus says the next U.S. GDP print will be around 1% and it has been weak during the entire recovery. There are plenty of emerging market countries with pretty good growth, not great but pretty good, that are down a lot this year. The last month, interestingly, there has been some recovery from some of the lagging segments but we'll see if that continues.

Looking back, asset allocation has not "worked" and 12 months from now we may look back and say the same thing or say something different but I promise you asset allocation is not permanently broken. This year indexing has "worked" very well, the last couple of years really but of course there have been periods where it didn't "work" at all -- like most of the previous decade.

The reason to put the word work in quotes so many times above is because things like indexing, asset allocation, dividend growth investing, various forms of short term trading never don't work. They are all valid and either they are right for you or not but they are valid and all take turns outperforming and lagging.

There is no question that other investment segments will outperform domestic indexes at some point and when it happens people will lament over domestic indexing being broken but of course that won't be true either.

The potential consequence to avoid is becoming impatient and chasing the thing that just worked. How many great investors do you know of who attribute their success to being impatient?

About this article:

Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here