Why do individual investors typically under perform institutional investors? The answer lies in the chart below. Many individual investors chase returns - buying last years’ winners and selling off losers. After being burned in the stock market in 2008, these investors moved to bonds, cash and gold, last year’s top asset classes. I call this the Money Magazine strategy. Pick up Money Magazine in December and buy what they recommend. Then watch last years winners become this year’s losers as institutional investors reallocate assets. Next year’s Money will have a whole new set of losers to chase.
The top 3 asset classes on the Chart below have now moved to the bottom of the chart in the first 6 months of 2009. Last years losers are this year’s top performers as Emerging Markets and Growth oriented stocks out performed all other classes.
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