I’ve devoted quite a lot of space to the topic of long-term strategic investing (the discussion runs from Blog #35 and I’m not done yet!). The reason why I’m harping so much on this topic is because I’m wedded to the idea that investment should be simple (but not simplistic). There is a huge difference between them.
Simplistic investing implies that one is naive, easily influenced by hearsay and sound bites, buying stocks for no better reason than everyone at the office water cooler is buying, flipping your stocks like burgers, chasing hot markets and so on. These are signs of sloppy investing, and I can tell you that it is rampant.
Good investors craft sensible asset allocation policies based on a correct understanding of how markets “get it right” over the long run even if they go off-tangent in the short run. For a start, good investors understand that risky assets like stocks provide a reliable positive equity risk premium when stocks are held over decades, not weeks. In other words, they understand the virtue of investing for long-term goals (see blogs 24, 25, 36). They also understand the wisdom of diversification and believe in earning a “diversification premium” by owning broadly diversified asset classes (blog 30). Third, they acknowledge the limits of predictions and choose buy-and-hold over market timing strategies (blog 29). Finally, they accept that risk tolerance has a shelf life, and thus take greater risks when young, lesser risks when old, the time-honored investment glide path approach to investment (blog 39).
If you have been a sloppy investor so far, make a fresh start and reinvent yourself! Revisit the above annotated blogs, read them thoughtfully and develop your own long-term investment strategy.
I have a “guest speaker” today who echoes most of what I have been saying about strategic investing. Antti Ilmanen holds a PhD from the University of Chicago Booth Business School and is currently a director of investment management firm, AQR Capital Management LLC. Below is a video clip of Dr. Ilmanen speaking on expected returns, market timing and strategic investment. 2.24 minutes into the clip, he talks about the futility of market timing. 6.23 minutes into the clip, he brings up the subject of strategic asset allocation. Enjoy!