Meb Faber reminds us that a buy-and-hold strategy is the first cousin to market-cap weighting. In fact, if you wait long enough, the two become virtually identical sans intervention. The problem, of course, as Faber notes, is that buy-and-hold/cap-weighting increasingly favors overvalued assets and, by implication, underweights assets that are trading at relatively inexpensive valuations, which presumably are linked with superior expected returns. “That, to me, is the biggest failing of buy and hold,” he writes. “It ignores common sense.”

Continue reading →

There’s still no political agreement to avert a Treasury default and so the possibility, however remote, is inching closer. What are the risks? Well, the floor is wide open for discussion–no one’s really sure where we’re headed because we’re in uncharted waters when it comes to Treasury defaults. Sort of. Donald Marron at the Tax Policy Center writes: “Actually, the United States Has Defaulted” by way of a brief, limited episode of default in 1979 on some T-bills. Meantime, what are your biggest concerns for the crisis du jour? Unsure? Not to worry as pundits have assembled an abundance of doomsday scenarios. Should you be worried? Yes. Why? Well, consider what our so-called leaders have produced so far–an unnecessary and entirely avoidable crisis that puts the US economy at risk. How much confidence should we have for expecting enlightened leadership to suddenly return in the days ahead? When you’re in the back seat of a car with a drunk driver who’s managed to avoid running off the road so far, it’s wise to reserve judgment on the outcome of the trip. As for pondering the worst-case scenarios, here’s my short list for thinking about the future if the unthinkable becomes reality:

Continue reading →