Investment Management - Chasing Yesterday's Returns
Investment management that tries to capitalize on trends in the market place is by no means a new phenonmenon. From the Dutch Tulip Mania to the real estate in the 80's to the recent tech bubble, professional investment managers and the public are drawn to trying to outguess the market by following trends. And for many, the outcome is less than desirable when the markets turn downwards.
The current Canadian Income-trust market is no exception. Professional investment management teams and the public as a whole are backing up the truck and loading up on this 'hot' current investment. What the end result will be - at present we cannot know. But if past investment management history shows us anything - it may not be pretty.
Majority of bubbles in a particular sector of the markets is accompanied by a general feeling in the media and the market as a whole that old rules don't apply, that this market will be different - for a number of reasons. But we have found in the end that most bubbles end like the last - and when looking back, the warning signs were there, but nobody read them.
The Canadian income trust sector shows similar signs. Returns over the last five years have been excellent, but mainly in the form of price appreciation, rather than growth in the underlying economic fundamentals. And the recent run-up in the consumer oil prices have added to the flames driving consumer perception that this investment is up to stay.
In the majority of similar sector bubbles, the period following the run-up in prices has been below average. This brings average returns be normalized over the long term.
One of the key investment management strategies is to have an exit strategy that takes you out before the market falls. This has been proven to be nearly impossible to do on a consistent basis, by professional investment management teams as well as the public as a whole.
What the future will bring for the latest bubble we will have to wait and see. But if history has it's way, it will be a downward trend over the next five years.
Good luck, and sharp investing!
The current Canadian Income-trust market is no exception. Professional investment management teams and the public as a whole are backing up the truck and loading up on this 'hot' current investment. What the end result will be - at present we cannot know. But if past investment management history shows us anything - it may not be pretty.
Majority of bubbles in a particular sector of the markets is accompanied by a general feeling in the media and the market as a whole that old rules don't apply, that this market will be different - for a number of reasons. But we have found in the end that most bubbles end like the last - and when looking back, the warning signs were there, but nobody read them.
The Canadian income trust sector shows similar signs. Returns over the last five years have been excellent, but mainly in the form of price appreciation, rather than growth in the underlying economic fundamentals. And the recent run-up in the consumer oil prices have added to the flames driving consumer perception that this investment is up to stay.
In the majority of similar sector bubbles, the period following the run-up in prices has been below average. This brings average returns be normalized over the long term.
One of the key investment management strategies is to have an exit strategy that takes you out before the market falls. This has been proven to be nearly impossible to do on a consistent basis, by professional investment management teams as well as the public as a whole.
What the future will bring for the latest bubble we will have to wait and see. But if history has it's way, it will be a downward trend over the next five years.
Good luck, and sharp investing!
posted by InvestmentAdvisor at 1:25 PM
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