Can’t Anybody Here Play This Game?

Casey Stengel said it about the N.Y. Mets, now we can say it about so called market experts. Just yesterday, a well regarded oil analyst in New York, whose name and company I’ve removed said, “Oil and commodities became a safe haven. It was the last thing that bankers can hang their hats on. Everything else had melted before their eyes.”
He was referring to the commodities price retreats of the last two days. Let’s take a minute to think over his comment.
The most recent market high back in October 07. From then until today:
Dow Jones Industrials -13.8%
S&P 500 -16.2%
EEM (emerging markets index, very volatile) -23.6%
IYR (dow reit, real estate index) -31.74% (reit high was February 07)

That’s from the two year highs. There is no particular reason to measure from there, it’s just the worst case example. There’s no reason to measure from a year ago, or the end of 2007. There’s nothing magical about any of those dates. As Warren Buffet said long ago, “There is no reason to measure investment performance by the time it takes the earth to travel around the sun.”
If you rebalance annually, then you will at some point buy more of the things that are down and sell some things that are up. You don’t alter your percentage of asset class allocation. You maintain, after rebalancing, the same percentage in stocks, bonds money market and real estate (which I view as a separate stock class.)
To do anything else turns you into a market timer. You aren’t a market timer, neither is anyone else. They think they are, they aren’t.
It is entirely true that all the stock classes went down. They all didn’t go down by the same amount, and if you had a six to ten year laddered bond portfolio as part of your mix, you made good money in that. Maybe not enough to make up for the poor market, but a very decent hedge.
What about our oil analyst’s expert comment? That all bankers had to hang their hat on was increasing commodities prices, “everything else had melted before their eyes.”
Is that true? Melted? The IEF, Lehman 7-10 year treasury fund, was up 12.5% from the beginning of the real estate index decline through yesterday. And that doesn’t count the dividends, you can tack on 3 to 3.5% to that return.
Yes, I can do basic math, 15% up in treasury returns doesn’t equal 30% down in real estate. However, that assumes you had the same amount of money in the reit index as you had in the treasury index.
I hope you catch my point. The dramatics of our anonymous expert aside, things were ugly, they didn’t melt before our eyes. A well diversified portfolio might have wound up with losses from the high through today, but was hardly decimated. If you’re going to be in the markets, the equity markets, you are going to have these periods. They’re good for everyone in the long run, they wash out the stupidity, the greed and, best of all, they eliminate the idea that you need a gaggle experts to run a decently managed portfolio. I keep telling you, they can’t do what they say they can do, beat the averages. Not in any market, for any reason, no matter how big their brains, their parallel processors or their balls.