The Most Dangerous Investment Strategy

“If we are in a transition period, the person in the most danger is the one who has recently done well, because he’s done well on things that are about to change.”

— Dean LeBaron (Batterymarch Financial Management)

Last Friday, the Wall Street Journal had a cover story, “Big Investors Lose Even as Market Rises,” about hedge fund managers like Paul Tudor Jones whose investments are down for the year even as the stock market is ahead by 5%. Tudor and other big hedge fund managers have taken losses on buying Nikkei Japanese stocks and shorting Treasuries.

These big financial operators were betting that last year’s winners would continue to outperform.

But last year’s winners may be this year’s losers, and vice versa. Treasuries have rallied this year, surprising most investors. Japan imposed a massive increase in its national sales tax in its misguided attempt to reduce its high debt level, rather than growing its way out of debt. The Nikkei index, which was up sharply last year, has suffered this year.

Read more about how you can avoid the most dangerous investment strategy at Eagle Daily Investor.