“Buy and Hold” Is NOT “Still A Winner”

Investors are being advised by Princeton Professor Burton G. Malkiel (“ ‘Buy and Hold’ Is Still A Winner”) to hang in there, even when the market drops 60% of its value, as it did during 2008-2009.

But Professor Malkiel clearly has little understanding of active investment management, a valid alternative to “buy and hold” investing, which he equates to market timing.

Active investment managers use technical and fundamental research to drive their decision making.  Active managers aim to reduce volatility and draw downs by using proven techniques such as hedging and stop-loss orders, as well as some of the techniques he advocates in his column – diversification, dollar-cost averaging. read more

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QE2: Will Investors Buy Higher Prices?

The chief role of the Federal Reserve used to be to fight inflation.  It was a role the Fed played well, generally holding inflation in check since the 1980s.

With the launch of a second round of quantitative easting (QE2), the Fed is switching direction and is seeking to increase inflation.

Why would we want higher prices – especially at a time when we need more consumer spending?

Because, the Fed believes a little more inflation is needed to stimulate the economy.  For some time now, the Fed has feared deflation. When prices drop, profits decrease, stock prices drop, and unemployment and bankruptcies increase.  Consumers put off purchases and wait for prices to fall further, which contributes to even further deflation. read more

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When Good News Is Bad News

Sometimes investment managers live in Bizzaro world, the place in the old Superman comics where everything is the opposite of what logic would dictate.

A case in point is the recent investor optimism.  Investors have been returning to the stock market, where inflows are finally exceeding outflows.  The American Association of Individual Investors recently found that 48% of investors are bullish on stocks, the highest level since February 2007, while only 27% are bearish, which is the lowest level since January 2006. read more

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