Smallcaps are Spiking. What’s Your Plan?
three incontrovertible data points to underscore his point. What do you think happens? The small caps and midcaps rally even harder. Between the day this fund manager made this statement, and at the time of writing this (1st September), this is what transpired in the stock markets: Eat that, you fund manager! Now note, this fund manager is not the only one who is starting to sound a note of caution.
There are others too. Some have even stopped accepting lumpsum investments in their small/midcap mutual fund schemes. Charlie Munger says “Show me the incentive and I will show you the outcome." If you believe this, then you must believe the converse as well.
When reasonable people act in a way that disincentivises them, you need to take note as well! And these fund managers are doing exactly that. Yet, the retail investor is not sitting up and taking note. This is not happening for the first time.
It’s happened before as well. And often (but not always) it ends up badly. For the retail investor.
Given this context, here are some broad principles to think through this situation. First, the right asset allocation is paramount. You need to have worked this out by now.
A well-structured asset allocation plan should span asset classes; and, within equities, it should suggest a broad allocation between largecaps, midcaps and smallcaps. If you have this in place, then what you need to do with your holdings should be easier to decide. So, for instance, if you should have only 10% of your stock holdings in smallcaps, but the number is hitting 50%, well, you know what to do.
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