Data-Driven Investor
Are investment returns random across time as Burton Malkiel suggests in his book, A Random Walk Down Wall Street? There is notable disagreement on this topic. This research finds that practitioners may need to rethink their portfolio optimization routines.
Stocks are a good wager over the long term, on favorable odds. But stocks remain a bet, and investors must grasp how much returns can vary over long time horizons.
A simple analysis shows that Robert Shiller's cyclically adjusted price-to-earnings ratio changed in the 1990s and that mean-reversion concerns may be misplaced. If CAPE changed three decades ago, however, there is nothing preventing it from doing so again.
Regret risk is a quantifiable phenomenon. The answer for some clients may be equally weighted portfolios.
Sometimes, regardless of the holding period, stocks do underperform in absolute terms or relative to bonds.
Growth and value style returns are the market's veritable gulf stream, and investors should not ignore their powerful currents.