Empirical Papers

 

This series includes all papers, recaps, and newsletters published by Empirical.

Capital Market Expectations and Valuations

Investment counseling helps investors do the right things. The investment counselor’s main professional task is to help each client identify, understand, and commit consistently and continually to long-term investment objectives that are both realistic in the capital markets and appropriate to the objectives of the client. The hardest part of the work is not figuring out the optimal investment policy; it is staying committed to sound investment policy and maintaining what Disraeli called “constancy to purpose.” Sustaining a long-term focus at market highs or lows is notoriously hard. In either case, emotions are strongest and current market action appears most demanding of change because the apparent “facts” seem most compelling. This is why being rational in an emotional environment is not easy. Holding on to a sound policy through thick and thin is extraordinarily difficult and extraordinarily important work. This is why investors can benefit from sound investment. The cost of infidelity can be very high.

-Charles D. Ellis
Winning the Loser’s Game
 

The quote from Charles Ellis sums up our purpose as your advisor relating to your investment strategy; to help you stay focused on your objectives for the full term of your investment time horizon. I want to congratulate the vast majority of our clients who have remained disciplined, have not succumbed to panic and have stuck to their investment plan. In hindsight 2008 will surely go down in history as one of the most trying markets for investors. In fact, equity investors have been liquidating equity mutual funds in large amounts recently, culminating with $70 billion flowing out of equity mutual funds in the month of October alone (see our recent Burton Malkiel letter for examples of poor investor timing in and out of mutual funds). Investors who have liquidated their funds recently will likely lock in low returns over their investment time horizon. To the extent we have played a role in your prudence we feel a deep sense of satisfaction because we believe you are doing the right thing for your financial future.

 

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