Quote for the Week
Volatility matters on only two levels. First, if two portfolios have equal average returns, the portfolio with the lower volatility will earn the higher compound return. On the other hand, investors understand this phenomenon – either intellectually or intuitively – and tend to price volatile securities accordingly. The second consideration in volatility is much more important: when is the owner of the principal of the fund going to disburse that principal? A fund that is tied up in perpetuity could fluctuate all over the place without any consequences whatsoever. It is my impression that too many funds with long horizons are managed as though they were going to be disbursed in the next couple of years, largely because volatility makes people uncomfortable – which is irrelevant to the conditions on which a rational decision should rest. Fear of volatility can be costly to long-run returns and can unnecessarily constrain the freedom of managers to do their best. — Peter Bernstein (source)
From the Archives
Last Call
- Remembering Daniel Kahneman: A Mosaic of Memories and Lessons – Behavioral Scientist
- What I Learned from Daniel Kahneman – J. Zweig
- The “Lesson I Have Learned” Mindset – Range Widely
- How the Stock Market Impacts Investor Mental Health – L. Swedroe
- Don’t Blame Indexing for Your Problems – O. Lamont
- The Alternative Truth of Private Equity and What That Means for Asset Allocation – Institutional Investor
- Ken Langone: The American Dream (podcast) – Invest Like the Best
- Jevons Paradox is Not Surprising – S. Godin
- Eddie’s House – Letters of Note
- The Forgotten War on Beepers – Pessimists Archive