Offshore Capitalist

A Loser’s Game

In a paper from Watson Wyatt, the author makes the distinction between long term strategic asset allocation (horizon 10+ years),  dynamic strategic asset allocation (horizon 3+ years), and tactical asset allocation (horizon months).

“Over short term periods market movements are dominated by “noise” – random events that cannot be predicted with any degree of reliability.  As a result, most of the time, making short term market timing moves is a loser’s game – with outcomes dominated by luck rather than skill, and high transaction costs.

“It is only when market valuations get to extreme levels that investors can confidently take positions to capitalise on values reverting to fair value, and even then investors need a time horizon of at least three years to allow for the reversion to fair value to unfold.”


Click for: The paper; source.

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