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
- Staying Rational – Humble Dollar
- Money Tips for People Who Hate Money – Root of All
- Name Changes as a Bubble Symptom – Owenomics
- Understanding Market Volatility: What History Teaches Us About Turbulent Times – L. Swedroe
- A $30 Million Lesson in Patience – T. Harford
- 50 Years. 50 Facts. Indexing Since 1976. – Vanguard
- How to Train Your Brain to See Possibility Instead of Doom – Guardian
- The Lifecycle of an Apocalypse – Palladium
- What Happens When You Trip and Fall into a Picasso? – Rabbit Cavern
- Exploring the Far Side of the Moon: A Visual History – Inverting Vision