I'm sure most of you saw this, but just in case...
Quick summary: Andrew Lo (MIT economist) says technology is one of the major
driving forces of stock market volatility. And volatility is so high now that
buy-and-hold investors are getting shellacked.
Bill Woessner writes:
Also, the markets being riskier/more volatile doesn't mean they're any
less efficient. Efficiency is not the same as rationality. A market
diverging from some alleged "rational" value as it swings way above
and way below the "rational value" doesn't a priori mean the market
I'm sure Lo knows all that, which it why it would be interesting to
see what he actually said.
Yes, exactly! The example he gives for why buy and hold doesn't work has
the investor bailing out, instead of buying and holding - and doing it
at exactly the wrong time.
Which is one of the arguments for buy and hold! If it's your strategy,
you don't do that - maybe you don't even know the market went down. Even
better, you buy-hold-rebalance and take the opportunity to "buy low."
That's low, not Lo, which I'm just not buying.
On the bright side, with another 6 months like the last 6 this genre of
article/economist will fade from view, replaced by "Did you just miss
that? The virtues of buy & hold." Remember when everyone was so freaked
out by high frequency traders that they didn't notice that the US
stock+bond market was at an all-time high? (as were the balanced index
funds that track those markets)
I'd written "For the 20 years ended Dec. 31, 2006, the average stock
fund investor earned a paltry 4.3 average annual compounded return
compared to 11.8 percent for the Standard & Poor?s 500 index"
Taken from a report by Dalbar. In a perfect world, one would see that
11.8 minus some very small cost, or perhaps even beating the 11.8 with
the effect of averaging in over time. In a high fee world, even 10.8
looks great compared to the 4.3 they calculated.
I almost spewed my dinner-salad onto my keyboard when I read the
You oughta join the folks at the Wall Street Journal site commenting
on Bodie's article. Ninety percent are Dapperdobbs-type (bona fide)
hotshots with all wisdom.