Larry MacDonald, of the Canadian Business blog recently published a 4-part series [Addendum: It's now up to 7 parts, and counting] that offered a number of quotes from people who vigorously support the merits of passive investing and its superiority to active investing.
I confess that I also believe that for most individual investors who try to pick winning stocks or who buy mutual funds, that it's better to go passive and save the expenses and fees charged by traditional mutual funds. So I'm a minor fan of index funds.
That rationale is part of the reason I trade options on a broad based index (RUT), rather than on individual stocks.
I left a comment on each post in the series, but received no replies.
Here's one such quote from Rick Ferri: "Asset allocation is the cornerstone of a prudent investment plan and is the single most important decision that an investor will make in regard to a portfolio.”
There is excellent evidence that the above statement was true. The important question is: Is it still valid today?
Those who support this idea never question how well it has done in recent years. They have an idea that they can sell to the public to gain their trust - and then sell them investing advice – both fee based (better for the investor) and commission based (a very poor choice).
I believe the lessons of 2008 show that asset allocation no longer provides the safety net that it did at one time. Today's investor should place less reliance on the powers of allocating assets and pay more attention to protecting the value of an investment portfolio by using options. The global marketplace makes it much more likely that previously uncorrelated assets will rise and fall together. There is no proof that my belief is true, but one more debacle similar to last year should be evidence enough.
I also post comments on Larry Swedroe's blog, Wise Investing. He and I have many areas of disagreement, but the primary one is that he fails to see the benefits of using options to hedge a portfolio. He prefers buy and hold (long enough to convert profits to long term) coupled with portfolio rebalancing and proper asset allocation. That's just too old-fashioned for me. But it does keep his clients happy, and paying fees.
I trust a collar to protect my assets far more than I trust those out-of-date ideas.