William Bernstein – Why Your Best Option Is Not to Trade

Daniel Penzing
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Why You Can't Win at Stock Trading

The financial industry has a saying: For long-term investors, buy and hold is dead. The line is an attempt to explain why any novice should “hire an active manager,” but the truth is that the opposite is true.

We live in a market where price momentum and quantitative easing have decimated fundamentals, meaning if you are a long-term investor who wants to play the fundamentals and ignore the noise, you are paralyzed.

This holds true whether you are a first-time investor or not. In this article, I’ll cover a few ways to mitigate risks, but I’ll also explain why your best option is to just avoid the market altogether.

Indexing and Asset Allocation

There are three popular investment approaches and one of them is “Indexing,” “Asset Allocation,” and “Market Timing.”

The three approaches are essentially three ways of attempting to beat the market, or, if not beat it, at least, not to be victimized by it.

Indexing is just what the name implies, an indexing investment strategy attempts to follow, as closely as possible, the overall market.

Asset Allocation is an investment approach that is based on a combination of two or more asset classes. Most asset allocation portfolios will hold both stocks and bonds but you might also find one that includes real estate investment trusts (REITS), commodities, precious metals, or even cash.

The third investment approach is Market Timing, which embraces the idea of trying to find and exploit market inefficiencies or trends before the market arrives at the same conclusion.

Whether you are an Indexer, Asset Allocator or a Market Timer there is something that you might want to consider ‗ and that is that every one of those investment approaches has produced far better returns than every single investor who has ever lived.