A 'Troublesome Commonality' During Two Recent Bouts Of Global Market Volatility
A prudent investment strategy usually stresses diversification because no one knows when a single stock, industry, or entire financial asset class will tank.
A very typical investment portfolio will have a mix of both stocks and bonds, like Treasury bonds. Investors count on this mix because when stocks tank, that money often flows into bonds, sending prices in those markets higher.
However, that relationship hasn't held in some recent bouts of market volatility.
"Looking at two recent episodes of market volatility, the taper tantrum of 2013 and the September setback of 2014, we discover a troublesome commonality," Columbia Management's Jeffrey Knight wrote. "During both of these events, nearly the full array of asset classes posted negative returns."
In other words, diversification didn't really work.
During periods of crisis, it's not unusual to see investors liquidate everything. However, no one would characterize the sell-offs Knight refers to as crises.
"While these two episodes proved to be only temporary, we think they foreshadow the risk management challenge that investors face when so many market prices are connected by interventionist macro policies," Knight said. "If all assets can rise together, then surely they can fall together."
Columbia Management
- A centenarian who starts her day with gentle exercise and loves walks shares 5 longevity tips, including staying single
- A couple accidentally shipped their cat in an Amazon return package. It arrived safely 6 days later, hundreds of miles away.
- FSSAI in process of collecting pan-India samples of Nestle's Cerelac baby cereals: CEO
- Top 5 places to visit near Rishikesh
- Indian economy remains in bright spot: Ministry of Finance
- A surprise visit: Tesla CEO Elon Musk heads to China after deferring India visit
- Unemployment among Indian youth is high, but it is transient: RBI MPC member
- Private Equity Investments