It may sound strange, but I was almost unhappy to see a Barron’s article last week highlighting the good fortune of the two funds we use to invest in Emerging Markets; DFA’s Emerging Markets Value Portfolio (DFEVX) and DFA’s Emerging Markets Core Portfolio (DFCEX). The article illustrated how, after January’s impressive performance, especially in international and emerging market stocks, investors have been flocking to equity-based mutual funds as cash inflows continue to increase.
This rush to emerging markets, in no doubt, stems from their excellent performance so far this year. As of the close on February 2, DFEVX was up 17.57% year to date with DFCEX following close behind at 14.97%.
So, why am I so glum? Well, to me, the blogs have almost written themselves lately. Last week, Jeannette touched on the media touting US stocks as the safe place to be in 2012 after their solid rise in the fourth quarter of last year. We see this week how quickly the tune can change after just one month of returns.
This is another indicator that, behaviorally, investors simply don’t understand the dangers of chasing winners, trying to time the market or somehow believing that buying the thing that just won over some arbitrary time period (Note: Emerging Markets, as an asset class, was one of the worst performers in 2011) is the right course of action. That’s not to say Emerging Markets is destined to perform poorly the rest of the year or that it will continue its rise. It just means that shouldn’t be the focus is in the first place.
Having a diversified, well thought out approach to investing means never missing out on what the market provides and never having to look over your shoulder at what you think might be coming next. Attempting to buy winners after the winning’s already occurred or is in process is a surefire way to lose over the long run. You almost always tend to miss out on the greatest gains.
To put it simply, you have to be at the party before the cake arrives. Trying to get in after the fact will, more often than not, leave you disappointed and hungry.