Jason Zweig, one of the best financial journalists in the business, asks in his latest Wall Street Journal column: Can you make the risk of stocks go away just by owning them long enough?
This is a popular question and one that has been the focus of entire books, such as Jeremy Siegel’s Stocks for the Long Run. It’s also a useful question, but it’s important to recognize that it’s only one question for strategic-minded investors.
The reason, as Bob Litterman explained in Modern Investment Management, can be condensed to a single sentence: “The simplest and most practical insight from modern portfolio theory is that investors should avoid concentrated risk.”