Buy and Hold Is Dead (Again): The Case for Active Portfolio Management in Dangerous Markets

I have known the author for several years. Although I am a fellow advisor with similar beliefs, it was refreshing to see this philosophy described so eloquently on paper. If you just allocate assets and expect portfolio performance to be on cruise control, you are doing yourself and your clients a disservice. Effective active portfolio management takes effort, skill and a thick skin and only a minority of advisors are committed to this. Ken's ideas about getting through the Kubler-Ross cycle in five minutes and telling clients up-front that you will make mistakes are things I needed to remember. This business is not about gathering as many assets as you can, but being a good steward of your existing clients' assets. Ken knows this and it shows in his book. Thanks, Ken, for this great book and rather than pass it around the office, I promise I will buy additional copies.

Most portfolio managers are either asleep at their desk, or out playing golf and shmoozing for new customers. They can get away with it, thanks to their training and thanks to the general acceptance of the "buy and hold" strategy across their industry. In a nutshell, "buy and hold" has said that no one can really out-think the stock market, and so the best thing that anyone can do when investing is to select the mix of stocks & bonds & other asset classes that fits the customer's risk tolerance, and then invest in that mix and sit on it forever. In the long run, they believe, the performance of that mix will revert to the historical mean performance (i.e. how much money you make and how much volatility you experience), so it's best to just sit tight and wait. Well, in the long run we are all dead. Meanwhile, what's your investment portfolio doing? In the current environment it's probably gone down the tubes. The "buy and hold" advisors hold your hand and say, "Don't worry, it will all be OK in the long run". Do you suppose that Bill Gates' investment advisor gets away with that? I think not ... or he would have been fired already. Solow's book explains, rigorously and with plenty of reference to academic papers, as well as references to his long experience, why you can do better than that. Indeed, you must do better than that in real life, if you are to have a reasonable hope of building up your savings in time for retirement. What I especially appreciate about this book is this: There's some serious theoretical material in here, taken both from economics and statistics. Solow understands it so well that he can explain difficult concepts with simplicity, clarity, and yet not oversimplify. This is a talent. If I ever had an economics professor in college who could do that, maybe I would have followed that path. But now I understand something thoroughly that was in the past only an intuition and maybe even a prejudice ... there is a reason why the very rich get richer ... it's because they know enough to hire smart advisors. Most advisors don't follow active management because it takes time, effort, resources and ideas to pursue. If your advisor's idea of "money management" is to go golfing for new clients, then there is a reason why your portfolio is bleeding money right now. In short, an important book, timely and a very easy read without being so simple as to insult your intelligence. We all have to provide for our own retirement these days, as no one else will do it for us