| One of the worst enemies of a serious long-term investor is a high level of correlation. The main reason for this is that high correlations make all of us the same: you are equal to me and I am equal to Benjamin Graham. We all look fantastically clever or terribly stupid at the same time, no matter the differences in expertise. When correlations are high, all asset classes look the same, and instead of allocating funds between EM equities, U.S. equities, sovereign bonds, junk bonds and commodities, it's better to pick just a single asset class, pour everything into it, and spend valuable time elsewhere. In the end, each asset class will move in the same direction as all the others and with pretty much the same strength. When asset class correlations are high, the extremes converge towards the average. Hedge funds and other actively managed funds fail to convince, in particular because the high fees they charge can't be justified by the average returns they achieve. Investors prefer to invest in the much cheaper passively managed index funds or even hand pick stocks by themselves. | 
Ingen kommentarer:
Send en kommentar