Get Off the Bandwagon! Mind the Oil!

This week I met with a mutual fund wholesaler from a very well known and reputable firm. Alas, he was imploring us, as advisors, to have faith in a couple of their very well known and historically popular funds, though recent performance has been nearly the worst it has ever been.

One of the arguments this wholesaler offered was that chasing the winners is rarely a good strategy. With that, I was forced to agree. As this article in the Financial Post so eloquently states:

It appears many advisors are giving clients what they want rather than the tough love they require. Advisors are more informed than typical investors because of how they spend their days, but "that makes them susceptible to being caught up in the latest fad," Mr. Richards says. Even so, he still believes "the vast majority" of investors benefit from dealing with experienced advisors who provide "a second opinion to curb the excesses. A good advisor operates as an emotional anchor."

Well, with that said, let us turn our attention to the subject of oil. Oil is a subject much talked about in a wide variety of circles. In fact, the price of oil has gotten to the point where nearly everyone is somewhat familiar with the current price of a barrel of oil. To me, this is indicative of a serious issue.

This recent article in Fortune details a well considered argument for a future correction in oil prices. I tend to agree with the position.

What's the point? The point is that everyone has been very excited about the profitability of the energy sector for a long time. The price of oil is higher than it has ever been. High enough that consumers are beginning to change their behaviours and other forms of energy supply are starting to come on line, thus reducing demand.

Beware the advisor that has you overweight in energy, or for that matter, overweight in Canada, which is primarily energy and financial stocks. The wise choice is still, as it was always, not to gamble on sectors or trends, and rather to focus on the long term with a well diversified and regularly rebalanced portfolio.