Market Timing is back?
Cliff Asness (of AQR one of the world’s first quant hedge funds) has put together a rather compelling argument on market timing (active investment) vs the well marketing passive investment approach. Personally I far prefer the active approach but only b/c I have the time and a team behind me to ensure we have the ability to continually look for new ideas, its an interesting read, see below for snippets and a link to the rest of the article.
“For 15 years we have attributed the following quote to late economist Paul Samuelson, though, admittedly, we can’t find a trace of it now. We remember him saying near the height of the technology bubble of 1999–2000, when stock prices were at astronomical highs, something along the lines of, “Market timing is an investing sin, and for once I recommend that you sin a little.”
“As alluded to earlier when discussing the long-term upward drift in CAPE, another related but distinct headwind for contrarian stock market timing in the second half of our sample has been the decades-long valuation drift in post-World War II equity markets, over which the CAPE gradually doubled. The average CAPE for the decade immediately following WWII was 12.4, while the average CAPE since the year 2000 has been over 25.”
He then addresses the oft-heard argument that this valuation drift is a secular change.