Market Timing: Should You Attempt It?: Peter Bernstein Favors Market Timing?.
Sounds topical, right? If you click on the link, you'll discover this was written in 2003 based on a presentation by Peter Bernstein during which he suggested "market timing" might make sense. His underlying premise is that the traditional definition of asset allocation, essentially, buy and hold, didn't work and that rebalancing decisions are just as difficult at market timing. This article reviewed in context with this article and this discussion - http://www.cxoadvisory.com/blog/external/blog2-17-09/ suggest that building low variance, asset allocated portfolios involving less underlying active management and a willingness to rebalance somewhat more frequently can be useful.
Asset allocation isn't dead, just wounded. Many believe it didn't fulfill its responsibility in 2008, yet most acknowledge that only short-term Treasuries and cash did well. My research suggests that most asset allocation strategies did better than all equity portfolios and worse than all fixed portfolios. And, yes, they were negative for the year. It appears to me that the critics of asset allocation are suggesting that asset allocation strategies are, or were portrayed as, absolute return strategies. Clearly incorrect. Long-only strategies will be subject to declines. Asset allocation, with market timing to cash, would have performed well, but few are fully committed to the strategy espoused by Bernstein in 2003. I prefer an asset allocation approach that combines long-only equity and fixed strategies with absolute return oriented strategies. I believe these produce the lower-variance portfolios that can better withstand fat tail events. And, yes, tactical rebalancing (market timing) may make sense as well. The challenge, of course, is knowing when to do so.
Sounds topical, right? If you click on the link, you'll discover this was written in 2003 based on a presentation by Peter Bernstein during which he suggested "market timing" might make sense. His underlying premise is that the traditional definition of asset allocation, essentially, buy and hold, didn't work and that rebalancing decisions are just as difficult at market timing. This article reviewed in context with this article and this discussion - http://www.cxoadvisory.com/blog/external/blog2-17-09/ suggest that building low variance, asset allocated portfolios involving less underlying active management and a willingness to rebalance somewhat more frequently can be useful.
Asset allocation isn't dead, just wounded. Many believe it didn't fulfill its responsibility in 2008, yet most acknowledge that only short-term Treasuries and cash did well. My research suggests that most asset allocation strategies did better than all equity portfolios and worse than all fixed portfolios. And, yes, they were negative for the year. It appears to me that the critics of asset allocation are suggesting that asset allocation strategies are, or were portrayed as, absolute return strategies. Clearly incorrect. Long-only strategies will be subject to declines. Asset allocation, with market timing to cash, would have performed well, but few are fully committed to the strategy espoused by Bernstein in 2003. I prefer an asset allocation approach that combines long-only equity and fixed strategies with absolute return oriented strategies. I believe these produce the lower-variance portfolios that can better withstand fat tail events. And, yes, tactical rebalancing (market timing) may make sense as well. The challenge, of course, is knowing when to do so.
