What wakened me about the big correction of '87 was how index funds did fine that year staying fully invested while almost all funds lost big time as their managers played lemmings and bailed. I had no idea mutual funds could "get out of the market" ...
The following excerpt from Chapter 17 of "A PIECE OF THE ACTION: How the Middle Class Joined the Money Class" by Joseph Nocera, makes interesting reading.
Apparently, Fidelity (and most other funds) chickened out and bailed during and after the crash, not before.
---- Begin Excerpt ----
There was, however, a more significant move
[Fidelity's Ned] Johnson could have made to protect his customers
from the full force of the coming crash. He could
have changed the company's firm but unspoken rule
that Fidelity's stock funds had to be fully
invested at all times. He could have let it be
known, as the market began to tumble, that it
would be all right for the fund managers to
shelter some assets in cash. But Johnson did no
such thing. He had always believed that people
who handed over their money to Fidelity did so in
the expectation that it would be invested in the
market. That belief did not change once the
market peaked in 1987.
Surely, though, Johnson was giving his customers
too much credit. Most middle-class investors
found mutual funds appealing precisely because
they wanted someone more knowledgeable than they
to make market decisions on their behalf. The
decision about whether or not to be fully
invested was exactly the kind of judgment a
novice investor would want his fund manager to
make. Yet after everything that had happened
during the past decade--after all his prescient
moves to draw middle-class money to his
company--Johnson still seemed to perceive his
customers as investing sophisticates, which they
were not. If, late in the summer of 1987, he had
allowed his fund managers to begin moving some
assets out of stocks and into cash, he might have
saved his customers some money. But this he was
not yet ready to do; in his own way, he was also
hanging on to an image of Fidelity that no longer
reflected reality.
---- End Excerpt ---- |
