Birchtree
TSP Talk Royalty
- Reaction score
- 143
Re: Birchtree's account talk
From TWSJ "Irrational Complacency" by Burton G.Malkiel dated 4/30/07
"As a believer in efficient markets, I hesitate to conclude that our markets are being irrationally complacent. I believe that markets are high and risk spreads compressed because of massive increases in world liquidity. A world awash in dollar-based purchasing power has helped to keep our interest rates low and the spreads on risk assets tight. (got that GG) It has encouraged large flows of money into private equity funds that are privatizing (and leveraging) some of the undervalued companies in the market, leaving less attractive firms available for public investors. Flows of money have also continued into hedge funds where leverage is high and where accidents such as the Amaranth collapse are always possible. In our highly leveraged, narrow-spread markets, shocks to the system - be they economic or geopolitical-can have large destabilizing effects.
So what should investors do as the Dow rises to new highs. Should they sell in May and go away, as one stock-market bromide suggests? As a student of markets for over 50 years, I am convinced that attempting to time the market is a fool's game. But new highs in the market should induce investors to review their asset allocations. If the rising stock market has pushed your allocation of equities well above the level consistent with your risk tolerances, it makes sense to consider rebalancing. (Rokid would be proud). Rebalancing is an excellent strategy to constrain your investment risk in a very uncertain world.
Despite the risks and potential problems I have outlined, I remain a cautious optimist. I don't think anyone will make money in the long run betting against the inherent strength of the U.S. economy. I expect that the economy will adjust eventually to whatever imbalances exist and that the nations of the world will ultimately find peaceful solutions to the seemingly intractable problems that continue to bedevil us". Amen to that.
From TWSJ "Irrational Complacency" by Burton G.Malkiel dated 4/30/07
"As a believer in efficient markets, I hesitate to conclude that our markets are being irrationally complacent. I believe that markets are high and risk spreads compressed because of massive increases in world liquidity. A world awash in dollar-based purchasing power has helped to keep our interest rates low and the spreads on risk assets tight. (got that GG) It has encouraged large flows of money into private equity funds that are privatizing (and leveraging) some of the undervalued companies in the market, leaving less attractive firms available for public investors. Flows of money have also continued into hedge funds where leverage is high and where accidents such as the Amaranth collapse are always possible. In our highly leveraged, narrow-spread markets, shocks to the system - be they economic or geopolitical-can have large destabilizing effects.
So what should investors do as the Dow rises to new highs. Should they sell in May and go away, as one stock-market bromide suggests? As a student of markets for over 50 years, I am convinced that attempting to time the market is a fool's game. But new highs in the market should induce investors to review their asset allocations. If the rising stock market has pushed your allocation of equities well above the level consistent with your risk tolerances, it makes sense to consider rebalancing. (Rokid would be proud). Rebalancing is an excellent strategy to constrain your investment risk in a very uncertain world.
Despite the risks and potential problems I have outlined, I remain a cautious optimist. I don't think anyone will make money in the long run betting against the inherent strength of the U.S. economy. I expect that the economy will adjust eventually to whatever imbalances exist and that the nations of the world will ultimately find peaceful solutions to the seemingly intractable problems that continue to bedevil us". Amen to that.
