Dr Burton Malkiel is the economics professor at Princeton and author of a best-seller A Random Walk Down Wall Street. If my memory serves me right it has run into nine editions till date and remains an all time investment classic.
In a recent WSJ article, titled ‘Buy and Hold is still a winner-’ Professor Malkiel reinforces the timeless wisdom of a buy and hold investment strategy using passive indexing i.e. even during the turbulent first decade of the 21st century.
The lessons from his analysis, in principle, are applicable to Indian investors also: it is rather difficult to outguess and beat the markets consistently!
Some outstanding words (in italics) from the article,
Many obituaries have been written for the investment strategy of buy and hold. Of course, investors would be better off if they could avoid being in the stock market during periods when it declines. But no one—either professional or amateur—has ever been able to time the market consistently. And when they try, the evidence shows that both individual and institutional investors buy at market tops and sell at market bottoms.
I am reproducing a sample of ‘market timing’ from the article.
Market strategists called for a sharp market decline in late August 2010 as technical indicators were uniformly bearish. The market responded with its best September in decades.
The logic of passive indexing, in brief,
Low-cost passive (index-fund) investing remains an excellent strategy for at least the core of every portfolio. All the stocks in the market must be held by someone. Therefore, if one active portfolio manager is holding the better-performing stocks, then some other active manager must be holding those with below-average returns.
No comments:
Post a Comment