Was 2008 A Last Gasp? Or A Rebirth?
Sound the bells, weep a thousand tears! Buy-and-hold investing is dead. Here we are again, my friends, at another six sigma special, a new paradigm, the never ever before a hundred times again. Another Great Depression, ah the drama!
My question, and the question that we are really getting at in this issue is this: Is it really all that? I love our opening piece by the always provocative and well-sourced Matt Moran, because he sort of indicates that, well, yes, maybe it is. The BIG story that comes out of last fall is its double-underlined, highlighted restatement of the dirty little secret of modern portfolio theory: The very reason we seek out diversification—to seek shelter in times of economic turmoil—is the very time when the correlation benefit of diversification tends to fail.
Or that’s what we heard a million times last fall, even as we watched equity prices, bond prices, heck, even gold prices plummet in tandem. The Moran piece takes a real good look at the data, and his conclusion is that yes, the magnitude of collapsing correlations last fall was exceptional.
Next up is Rob Arnott, looking at, yes, market weighting with his co-authors. But they detail various permutations and combinations of cap, equal and economic—or “fundamental”—weighting and their history (and future?) in ways that I’m sure you’ll find interesting.
In a surprise appearance, the former editor of this publication, John Prestbo, comes in with his own rather stunning assertion that buy-and-hold just may not be the all-ending gospel for a sensible, cautious, thoughtful investor. And this from a man who is indexing.
Directly addressing our “Is Buy-And-Hold Dead?” theme, we’ve got an exceptional and insightful virtual roundtable including John Bogle, Diane Garnick, Jeremy Siegel, Burton Malkiel and others weighing in on the subject.
The always interesting, always thorough Professor Craig Israelsen submits that it is not so much if a fund is active or passive that matters, but how that portfolio of funds is managed by the end-investor, a topic that seems particularly apt as more and more investors use passive products in very active ways, even as some active investors use their funds in very passive ways. And of course, the professor has got data. Lots of data.
Next, Gary Gastineau presents part two of his series on mutual funds and ETFs and focuses on how fund ratings systems should really work.
Bringing us home this issue is David Blitzer, who came up with a column spoofing the famous New York Sun letter from “Virginia” asking if Santa Claus was real. Only, Blitzer’s writer “Bill” asks instead if buy-and-hold is dead, or lives with us still.
We’re getting back to the basics this issue, like a broad swath of the investing public, and we hope you enjoy it.
See you in Florida at our Inside ETFs conference!