Pimco’s El-Erian: Beware of Value Traps, Seek Catalysts

Pimco Co-CEO Mohamed El-Erian tells CNBC that “every investor should go back to the basics” in 2009. According to El-Erian, investors need to focus on “diversified asset allocation, good implementation vehicles, and solid risk management”. El-Erian believes equities could lag until investor confidence improves and warns that some investments could be value traps — meaning their attractive valuations alone aren’t enough reason to invest in them and that they could fall further. Instead he says “don’t fall into that (value) trap … rather, go for those assets that are not only dislocated but where there’s a catalyst for normalization, where you can actually identify what it is that’s going to bring valuations back to somewhat more reasonable (levels). If you do that you will get both the upside and protection against the downside. That’s going to be the key issue in 2009.”