Unpredictability of Stock Prices
To the Editor:
Charles Rotblut’s interview with Burton Malkiel [“Stock Price Movements Are Unpredictable,” March 2011 AAII Journal]causes me to wonder if Malkiel’s random walk theory should also be applied to portfolio strategies. That is, perhaps a truly diversified portfolio should not only include Professor Malkiel’s approach, but also separate sub-portfolios made up of varying disciplines that might include trend, relative strength, or some other technical-based strategies, with each sub-portfolio diversified among the suggested sectors. After all, the portfolio make-up proposed in Professor Malkiel’s book may or may not be the correct strategy over the next 10 or 20 years if asset class correlations and relative returns veer toward previously undefined territory. Why not hedge by using two or three approaches with reasonable risk-adjusted returns that have low correlations? My guess would be that, for most individual investors, today’s liquidity, low costs, and educational resources (such as AAII) make a variety of various strategies sensible alternatives to using one methodology that relies primarily on periodic rebalancing into asset classes that may or may not perform in a manner that is consistent with their historical risk, ret
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