This is from Abby Joseph Cohen as quoted in Barron's.
There are many investors who have dramatically shortened their time horizons. That always happens when volatility picks up, and in some ways it adds to the volatility because these investors look at momentum rather than value.
This is a useful comment about psychology causing people to make bad decisions reacting to moves of the market.
Cohen goes on to use this is a basis for a buying opportunity which is not so clear to me.
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5 comments:
Roger, I am very new to your blog; in fact, as of tonight. Question: in your opinion, what is the best way to adjust a position(s) within a company sponsored 401k? The 401k is The Vanguard Group and my current holdings are 25% Vanguard foreign, roughly 65% domestic stocks (Vanguard 500 index), and 10% bonds.
Knowing nothing about you I can't really say what is best for you.
Accounts I manage have about 35% of their equity exposure in foreign.
The amount to have in fixed income really depends on tolerance for normal stock market volatility and your age.
There are arguments for lopsiding a 401k to favor stocks or bonds but this makes no sense if your 401k is a large part of your investible assets, as it is for most folks.
Roger, what I was referring to, particularly, is how (physically) can I "realign" my holdings within my 401k...or, in other words, what is the most popular method that people do to take action within their 401k to shield themselves from severe-type market swings, or more precisely, market changes, such as the kind I infer that you've been recently warning about?
By the way, a little background. I am 42 and I got started late in life--2 years ago--in this 401k program. I got started in real estate 11 years ago--I own 2 houses with my wife, a rental and the one we live in. And I make my living on the railroad as a locomotive engine on Amtrak; therefore, I am looking forwarded to a defined pension through the Railroad Retirement System...I've sure been involuntarily contributing a train load of cash to over the years (if congress, the nations carriers, and the labor unions don't agree...sometime in the next 20yrs...to change this system).
I don't believe I follow. Every 401k I have ever seen has a money market or stable value option.
"How (physically) can I "realign" my holdings within my 401k," there should be some mechanism for you to rebalance. What am I missing?
As far as most people...I think most people do not rebalance.
If I am anywhere close to understanding your question, I don;t think I am, the scope is too broad for this forum.
Hi all,
This is a fantastic comment revealing that even sophisticated minds like Abby Joseph Cohen believe that value and momentum are mutually exclusive. We think the very best of stocks are those that have both value and momentum characteristics. How can stocks have both value and momentum characterisitcs? -- think Apple, think Microsoft, think eBay. Think Warren Buffett, a value investor that invested and held undervalued stocks that had significant outperformance over time -- momentum over time.
A combined value-momentum approach has been well-documented in academical literature as having a superior Sharpe ratio and better performance than any other stategy. Our Best Ideas portfolio continues to reveal the enormous benefits of a combined value-momentum process as well. Value and momentum are not mutually exclusive, but are extremely powerful when combined.
Thanks Roger for the site, and thanks for posting Cohen's comment.
Kind regards,
Brian Nelson, CFA
President, Equity Research
Valuentum Securies, Inc.
brian@valuentum.com
www.valuentum.com
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