Find ways to manage summer slumps
To create some investment excitement, and to help the greeting card industry, let’s designate something called “Losers’ Week.” This would be a week set aside to celebrate the fact that yesterday’s perennial fund losers have finally begun to stir. We may soon be disappointed once again as we enter what is traditionally the “summer doldrums” of a seasonally weakening stock market, but for the moment, we have something to be happy about if we’ve been patiently holding, say, energy, precious metals or China funds — to pick a few examples.
Specific types of investment styles or segments of the stock market all go through periods when they fail to do as well as other “hot” sectors. Stock analysis is no antidote in the face of a falling market for a fund type. So, picture the hapless fund manager charged with making something happen in a fund type that finds itself temporarily on the wrong side of stock market history. Cobwebs growing on his or her phone best describe a typical day where inbound money has dried up as the fund struggles through a period when stocks in the sector have lost, say 50 percent or more.
This was the case with energy. The sector lost 50 percent of its value from 2014 to 2015. Now, however, it is battling back with a 33 percent gain since hitting bottom, with 17 percent delivered in just the last 12 months.
Precious metals was another sector darling that rocketed straight up during the financial collapse, but then lost 75 percent of its value between 2011 and 2016. But wait! It has gained about 70 percent in a year and a half.
How about China? Its high-water mark was in the summer of 2015, but it promptly lost 30 percent by 2016. Since then, it has doubled in value with 40 percent of that gain happening in just the past 12 months.
Next up for current losers that may deserve some love could be real estate. The universe of real estate investment trusts (REITs) has lost 3 percent over the past 12 months while the S&P 500 index has gained 13 percent. However, a recent Wall Street Journal title proclaimed, “Investors Step Back Into Struggling REITs.” The article points out that in March, the REIT index gained 3.7 percent while the S&P 500 index dropped 2.5 percent. It may take awhile for this sector to meet expectations, because real estate in general operates in 10year cycles compared to typical 4- to 7-year cycles in the rest of the market. The time required by the industry to respond to changes in supply and demand takes longer than most other categories thanks to building permits, approvals, etc., as well as the time it takes for demand to soak up oversupply. So REIT investors like me have to be really patient.
Meanwhile those formerly hapless fund managers are now feeling like they deserve a little respect. Having owned at least one fund in each of these sectors myself, I’m feeling more confident in my own investment prowess, but not for reasons you might think. I can only pat myself on the back for having had the patience to be a buy-and-hold investor with assets spread out over a broad mix of categories. This is vastly different from someone who expects to try
to buy low and sell high while timing these different select industry categories.
The closest I have come to “timing” any of these markets has been a halfhearted effort to rebalance periodically — the process of selling a few shares of my winners and
buying some of the losers — an admittedly painful exercise because we love our winners and hate to part with any part of them. The problem of loving our winners is that they don’t know
we love them. They could care less if we sold a few shares and spent the money on some of that period’s “losers.” So, celebrating “Losers Week” makes sense if it prompts us to buy a few shares
while they’re down.