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Vancouver, B.C. (November
6, 2000): This year's frequent and often
steep market corrections - such as the slide of
Nortel, Home Depot, Intel, Apple and several others,
along with the resulting dumping of the stocks
- illustrate the difficulty in trying to beat
the markets on a daily basis. This hands-on approach
is “active management”.
Vancouver's fee-only investment
counsel Adrian Mastracci of KCM Wealth
Management says, “few people make money
switching horses in mid-stream”. He cites
the Nobel Prize winning studies, which concluded
that efforts to beat the market are not only non-productive-they
are counter-productive, in part because of the
commissions and income taxes paid. The studies
clearly demonstrated that the asset allocation
decisions are by far the dominant contributors
to total returns, not the security selection and
market timing decisions.
Simply put, the combination of the
choice of asset classes in which to invest and
the choice of asset mix that remain unchanged
over time are the most critical investment decisions.
This buy and hold approach is “passive management".
The studies found that asset allocation decisions
clearly dominated market timing and security selection
decisions, explaining on average 94% of the contribution
to total plan returns.
“Jumping in or out of the market
every time it moves up or down is a losing strategy,
even if you make the occasional proverbial killing,”
stated Mastracci. “The winning move is to
develop your long-term game plan, stick to it
and ignore the markets' daily hiccups. After all,
there will soon be another falling, or rising,
star in your investment neighbourhood - perhaps
as early as tomorrow, or the next day.”
“My advice to investors is
to establish their asset allocation decisions,
stay the course and sleep well at night,”
sums up Mastracci, “In short, start playing
the winning game.”
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