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Editor’s Note
Was 2008 A Last Gasp?
Or A Rebirth?
Jim Wiandt
Editor
Sound the bells, weep a thousand tears! Buy-and-hold investing is dead. Here we
are again, my friends, at another six sigma special, a new paradigm, the never ever
before a hundred times again. Another Great Depression, ah the drama!
Ho hum.
My question, and the question that we are really getting at in this issue is this: Is it
really all that? I love our opening piece by the always provocative and well-sourced Matt
Moran, because he sort of indicates that, well, yes, maybe it is. The BIG story that comes
out of last fall is its double-underlined, highlighted restatement of the dirty little secret of
modern portfolio theory: The very reason we seek out diversification—to seek shelter in
times of economic turmoil—is the very time when the correlation benefit of diversification
tends to fail.
Or that’s what we heard a million times last fall, even as we watched equity prices,
bond prices, heck, even gold prices plummet in tandem. The Moran piece takes a real
good look at the data, and his conclusion is that yes, the magnitude of collapsing correlations
last fall was exceptional.
Next up is Rob Arnott, looking at, yes, market weighting with his co-authors. But
they detail various permutations and combinations of cap, equal and economic—or
“fundamental”—weighting and their history (and future?) in ways that I’m sure you’ll
find interesting.
In a surprise appearance, the former editor of this publication, John Prestbo, comes in
with his own rather stunning assertion that buy-and-hold just may not be the all-ending
gospel for a sensible, cautious, thoughtful investor. And this from a man who is indexing.
Directly addressing our “Is Buy-And-Hold Dead?” theme, we’ve got an exceptional and
insightful virtual roundtable including John Bogle, Diane Garnick, Jeremy Siegel, Burton
Malkiel and others weighing in on the subject.
The always interesting, always thorough Professor Craig Israelsen submits that it is not
so much if a fund is active or passive that matters, but how that portfolio of funds is managed
by the end-investor, a topic that seems particularly apt as more and more investors
use passive products in very active ways, even as some active investors use their funds in
very passive ways. And of course, the professor has got data. Lots of data.
Next, Gary Gastineau presents part two of his series on mutual funds and ETFs and
focuses on how fund ratings systems should really work.
Bringing us home this issue is David Blitzer, who came up with a column spoofing the
famous New York Sun letter from “Virginia” asking if Santa Claus was real. Only, Blitzer’s
writer “Bill” asks instead if buy-and-hold is dead, or lives with us still.
We’re getting back to the basics this issue, like a broad swath of the investing public,
and we hope you enjoy it.
See you in Florida at our Inside ETFs conference!
Jim Wiandt
Editor
8
January/February 2010