Investing in the real world faces a number of challenges, one of which is the human inclination for juicing returns, beating the crowd and (hopefully) delivering results that make for engaging conversation at cocktail parties. In practice, however, stuff happens that alter the best laid plans of mice, men and, yes, even mutual fund managers.
The latter come to mind after reading a story in today’s Wall Street Journal (subscription required), which reports, “Mutual-fund companies are proposing big investment-policy changes this year, with many asking shareholders for permission to put more of their money into foreign stocks and real estate just as those once-hot investments are slowing down.”
Opportunities often appear brighter elsewhere for active managers, particularly those wedded to the relatively efficient world of domestic stocks. It’s getting harder to look good by swimming in mid- and large-cap American equities. The realities of expenses, trading costs, taxes and unexpected events conspire to turn an otherwise impressive paper strategy into something less by the time the net results filter down to the end user–i.e., you and me. The challenge isn’t limited to U.S. stocks, although arguably it burns brightest there.