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LIpper: Investors Need To Ditch Equilibrium Theory Before The Next Crash

TedTed
in The Bullpen
FYI: When improved 19th century optics technology enabled astronomers to observe the trajectory of Mercury around the sun, they discovered it didn’t follow the path anticipated by Newton’s laws. But instead of disputing Newton’s theory, many astronomers decided that invisible dust was the cause of Mercury’s deviation from its expected trajectory.

Many investors appear to be making the same mistake as these astronomers by using equilibrium theory to ground asset allocation decisions. During the 2008 crash, U.S. pension fund losses wiped out the gains from the prior two years. Curiously the response to this has been to reduce asset allocation for equities to 50%, down from 60% in 2007. Hence when the next crash comes, pension funds will still have heavy losses, only marginally less so.
Regards,
Ted
http://lipperalpha.financial.thomsonreuters.com/2018/08/investors-need-to-ditch-equilibrium-theory-before-the-next-crash/?elq=4be2c001499c4967a3f89179a5415e76&elqCampaignId=166&elqTrackId=15E081E1E228019529B7760BB8448ACD&elqaid=32100&elqat=1&utm_campaign=00008DM_NewsletterLipperAlphaInsightFundInsightsWeekly_Other&utm_content=Newsletter_FundsWeekly_28Aug2018&utm_medium=lai&utm_source=newsletter
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