Financial Advisor Groupthink (Emerging Markets Edition)
- Joshua M Brown
- February 15th, 2011
Last October, Charles Schwab hosted 2000 of its independent financial advisors at its annual IMPACT Conference up in Boston.
My buddy Zipper Theory was in attendance and gave me the down and dirty in terms of what the consensus among participants seemed to be. Yes of course they all loved gold (which has underperformed), were sanguine about most fixed income (which has been dreadful) but of all the areas in which the advisors' groupthink was dangerous, their near-universal endorsement of emerging markets stocks and emerging markets bonds took the cake.
Here's what Zipper told us originally on October 31st after the conference:
Emerging Markets Stocks:
# BUY EM STOCKS - this was a really consensus idea - no one thought it was a bad idea or had a counter argument to why you should own them
# Most people don't own enough of these - should own them on a percentage of global GDP basis.
# Demographics/growth rates/no debt/emerging middle class/etc.
# Buy EM Debt w/a shovel and keep piling it on > better demographics/balance sheets/growth prospects
Of course. Now here's what Emerging Markets have done (as expressed by the widely-held EEM ETF) versus the S&P 500 from November 1st through today:
It never fails. By the way, I don't mean to pick on the Schwab advisers - their herd mentality is representative of all of us in the aggregate.
The question now is, where is Groupthink amongst investors and their advisers most prevalent today?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.