Dr. Andrew Lo is a thought leader in the world of portfolio management.
The MIT/Sloan School of Management professor and Director of MIT’s Laboratory for Financial Engineering has been widely quoted on the implications of the 2008 financial crisis. One theme that Dr. Lo emphasizes repeatedly is that the risks associated with different asset classes can vary dramatically over time and for this reason, risk must be tracked, forecasted and budgeted.
In a world in which the risk of any given asset class (and therefore, also the risk of any portfolio of asset classes) can change dramatically in a short period of time, a passive buy-and-hold approach may, in fact, result in unacceptable levels of volatility. Continue reading →
Prof. Burton Gordon Malkiel. Photo by J.D. Levine/Yale (photo courtesy of Princeton University)
Burton G. Malkiel, the Princeton professor who brought Efficient Market Theory to the mass market in his classic A Random Walk Down Wall Street has taken up the defense of buy and hold investing, and the idea of diversification more broadly.
None of it’s convinced Malkiel. In a strongly worded defense on the Wall Street Journal’s opinion page, adapted from his introduction to the upcoming 10th edition of Random Walk, he remains as convinced as ever that the average investor should own a diversified portfolio made up of cost-effective index funds and contribute to it regularly and rebalance periodically to take advantage of the benefits of dollar cost averaging. Continue reading →
Ed Dempsey, founder of Pension Partners, a New York City-based financial advisor, is not a fan of buy and hold investing. His style is “buy and rotate” and requires intensive ongoing analysis of what sectors are paying off now and when it’s time to cycle out of them. Continue reading →
In the Big Picture post on this chart earlier this week, Barry Ritholtz is drawn to that spiking yellow line. “If you manage to avoid the 10 Worst Days, your portfolio more than doubles the Buy & Hold performance,” he writes. $100,000 invested in the S&P 500 ETF in February 1993, would have grown to a total of $692,693.00. Buy and hold gets you to $324,330.15.
Figure out a way to miss the losing periods, Ritholtz notes, and you’re literally golden.
But to me, it’s just as interesting that the 10 best days almost exactly outweigh the 10 worst days. Continue reading →