Buy-and-hold worked great while Baby Boomers drove the U.S. economy and stock market from the early 1980s to 2007. But with demographics in the developed world now pointing down, investors with a penchant for growth and the ease of a buy-and-hold strategy are looking elsewhere.
Some are turning to emerging markets.
So, are emerging markets the new buy-and-hold play?
This was the topic of a webinar efinancialnews.com, a Dow Jones company, recently held. It was titled: Emerging Markets – Time To Take the Plunge?
The summary of the webinar began with this: “With stagnant growth, fixed-income yields at record lows and volatile equities markets in much of the western world, many investors are refocusing their sights on emerging markets.”
Then efinancialnews.com displayed this chart in support of its argument…
Make note of the red line labeled “2012.” It seems the webinar’s authors were drawing a comparison between 2012 and previous years (2009 and 2010), when investors poured more and more money into emerging-market funds as each respective year progressed.
This presentation, like many investment pitches, was perfectly ill-timed. It came at the end of October last year, shortly before investors began yanking funds OUT of emerging markets. Look…
Now, obviously there’s an ebb and flow in all money-flow charts. But in this case, the outflows were both sudden and extreme, making for increased volatility and nauseating price shocks in emerging-market stocks.
And that’s why there will never be a viable buy-and-hold strategy as it pertains to emerging-market stocks. Despite the lure of their better-than-average economic growth, emerging-market stocks are simply too volatile for most retail investors to stomach.