Most value managers are doing poorly in 2011, which is natural after couple years of value outperformance. You can call it Ken Fisher's The Great Humiliator, you can call it style shift, you can call it reversal to averages, but it happens. The most rational explanation for this phenomenon is that by the fact of outperformance the stocks you hold are not as cheap anymore, even though you still think they are cheap. So other investors with different styles pick something else and run with it and now you're underperforming. ;)
What can you do? You can:
1. continue holding for your stocks to be considered cheap again and outperform again
2. shift sector(s)
3. sell the stocks and hold cash/bonds
4. change investing style while value is out of favor
I don't advise 4, although some people do it. I won't mention names, but some people on SI do it. ;) Some of them even do it somewhat successfully. ;) It's not easy. Your call though. ;)
3 is IMHO for specific conditions. Although some of the conditions (debt ceiling games and Euro crisis) are set up for 3, it's tough to advise doing 3. ;) If we have a crash, you'd be a big winner though.
2 - this makes sense for some sectors
1 - this makes sense for some stocks/sectors too. :)
To look at your sectors in sequence:
- Gold/silver: huge run up. Yes, there are bullish (and bearish) arguments, but stocks are not cheap (and even though you can't really value gold itself, it's possibly not cheap either). IMHO, it's a candidate for sector shift, but if you are gold/silver bull, you'd argue against it.
- Oil - huge run up. There are bullish and bearish arguments, but stocks are mostly not cheap. Another candidate for sector shift, but if you're a peak oil fan, you might continue holding.
- Chinese stocks - fraud crash. Mostly sell and move on unless you have the big-non-RTO companies. I'd probably not shift from Chinese names that are out of fraud zone, since IMHO most of Chinese stocks are cheap. So I'd rather be on bull side even though bears are clamoring for RE bubble and hard landing.
- Cheap tech stocks - these have not run up. So I'd shift into the sector rather than shifting out of it. But yeah, obviously there are bull/bear arguments here as well. :)
It's also possible to find good/great stocks that are not sector dependent and perform greatly even when sectors/value-style are out of fashion. Not easy to do though. ;) |
