Slow and steady wins the race: Malkiel

July 28, 2009

Investment guru Burton Malkiel, author of A Random Walk Down Wall Street, has revealed at a briefing that Chinese equities form the largest part of his personal satellite portfolio, although the core remains in low-cost index funds.

Malkiel, in town to beat the drum for Vanguard’s index funds, argued that China will be the biggest economy in the world in 20 years’ time, but most investors are underweight the emerging giant. “I’m a real expert on China – I’ve been there five times,” he joked, but made the serious point that most investors have a home bias.

“In general, people are inadequately diversified,” he said. “When people ask me how much international diversification they should have, I say: A lot more!” He conceded that asset class diversification had not been much help last year when markets collapsed in a great unwinding, but added that gold and US Treasuries had provided some relief.

Malkiel believes investors would do much better if they didn’t try to time the market – because they invariably get it wrong.

Over 15 years, between 1994 and 2008, those who stayed the course enjoyed an average annual return of 6.5 percent, whilst those who missed the best 30 days were down 3.7 percent per annum. If you stayed out longer and missed the best 90 days, you’d be down 14.6 percent per annum on average.

Similarly, those investors who save regularly, putting money into markets every month through good times and bad, benefit from dollar cost averaging, essentially buying more units for the same monthly sum when prices have fallen, and then enjoying any subsequent appreciation.

It’s a victory for the tortoise, not the hare.

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[…] investment officer at AlphaShares, is perhaps the most visible figure in this group. Malkiel has repeatedly lamented that most investors avoid Chinese equities completely, and those who do invest miss out on the […]

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