In the recent Bloomberg article one of the greatest fund managers of our time, PIMCO’s Bill Gross, was outlined for three major mistakes he made throughout 2013. Bloomberg writes:
Pimco was hurt in 2013 by wrong-way bets on U.S. Treasuries, inflation-linked bonds and Brazil. The firm concluded in its annual investment forum in May that the U.S. economy had not reached “escape velocity,” and that growth over the next three to five years would average not much more than 2 percent a year. What it didn’t anticipate was that in May, Federal Reserve Chairman Ben S. Bernanke would raise the possibility that the central bank might scale back its bond-buying program if growth picked up.
Personally, I got two trading calls wrong, within one theme – however I still continue to hold my trades as they are small positions relative to my NAV (many would also argue that my very large PMs investment is also a wrong call, but I do not think so). The theme I am discussing was the potential bear market in US equities and as a result, the ageing bull market in Yen hopefully going into a parabolic as flight to safety occurs (like Swiss Franc did before it). It didn’t happen.
Regardless, my point is that this business is super tough. Trading and investing is extremely hard to make a living from. Underperformance doesn’t just happen to younger inexperienced investors, but also to the famous guru status experienced old timers who have made millions, if not billions from this business throughout the 1980s, 90s and 2000s. I am not going to name all the gurus and famous hedge fund managers who got wrong calls this year, but there are plenty.
So what went wrong? Why has 2013 been a hard year for investors?
Well, let us observe Chart 1 for a minute and also remember various global macro performance posts I have done on the blog throughout November and December. Basically, all assets outside of developed market stocks and junk bonds have had a terrible time.
Chart 1: 3 out of 4 major asset classes showed losses over the last year
Source: Short Side of Long
Whether it was Gold, Treasuries, industrial and agricultural commodities, emerging market equities, corporate bonds, foreign currencies or real estate investment trusts – all of them either finished barley flat or negative for the year (in some cases down a lot). Therefore, even if you were strongly diversified across all asset classes, the positive performance of the portfolio (DM stocks) would not have been good enough to off set losses in EM stocks, commodities, bonds, currencies and other alternative assets.
Within the financial markets, excluding art and real estate, three out of the four major asset classes showed investors losses over the last 12 months. As my brother would famously say “that’s a rough time!” Last time we saw something similar was during 2008, with US & GEM equities plus Gold being down year over year. Back than, Treasuries were a safe haven as they outperformed, however today the US equities are the preferred asset of choice for the ever continuing parabolic upward momentum.
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