Well not exactly. No situation ever repeat itself perfectly. But there certainly can be similarities.
In the mid 1990’s a diversified portfolio under-performed the U.S. Large Cap Growth asset class. In fact they under-performed by substantial amounts.
The ‘dot com’ equity market was hot, very hot. Everyone wanted technology stocks. Money poured in. Enron was riding high. From 1996 to 2000 NASDAQ stock index went from 600 to 5000. That’s over a 700% cumulative return in five years. WOW!! Tech stocks were the only thing to won. It was called the new economy, a new paradigm. The world was changed forever.
Those that recommended and defended diversified portfolios were considered ‘old school’ or ‘out of touch’. Their portfolios underperformed and underperformed badly.
In fact, as I have written many times before. Warren Buffet at the height of the craze had shown a loss.
Below is an excerpt from a article by Jesse Colombo depicting the sequence of events.
By early 2000, reality started to sink in. Investors soon realized that the dot-com dream had devolved into a classic speculative bubble. Within months, the NASDAQ stock index crashed from 5,000 to 2,000. Hundreds of stocks such as Pet.com, which once had multi-billion dollar market capitalizations, were off the map as quickly as they appeared. Panic selling ensued as the stock market’s value plunged by trillions of dollars. The NASDAQ further plunged to 800 by 2002. One former high-flier, Microstrategy, slid from a lofty $3500 per share to a pitiful $4 per share. At this time, numerous accounting scandals came to light in which tech companies had artificially inflated their earnings. In 2001, the U.S. economy experienced a post dot-com bubble recession, which forced the Federal Reserve to repeatedly cut interest rates to stop the bleeding. Hundreds of thousands of technology professionals lost their jobs and, if they had invested in tech stocks, lost a significant portion of their life savings.
Needless to say, the New Economy theory was proven wrong and traditional economic principles still hold. What is sadly interesting is how bubbles will continue to occur in the future. When they do occur, foolish investors will continue to convince themselves that “this time is different!
Many investors with portfolios concentrated in tech stocks were decimated.
Today with the ‘Brexit” volatility the majority are avoiding international equities. The U.S. large stocks have been outperforming over the last couple of years. I assume that the Brexit subject has been around for much longer than the media has said.
That means that a globally diversified portfolio has underperformed for the last couple of years.
Will this continue? Will history repeat itself and international equities outperform in the near future? I have no idea. But I do know that over the long term a globally diversified portfolio will result in great results.
Find a fiduciary adviser/investor coach who will keep you disciplined to a globally diversified portfolio. And take the guess work out of your investing experience.
Try to ignore short term volatility.