- A Nobel Prize was awarded to the theory that the best Rate of Return for an increment of risk is a balanced portfolio of stocks and bonds.
- An investor is only an owner (stocks) and/or a lender (bonds).
- An illiquid, less diversified, and more expensive alternative investment must provide a rate of return greater than a more liquid, diversified portfolio, net of fees.
- The stock market represents daily liquid business ownership with positive or negative cash flows and earnings.
- Buying things, hoping someone will pay more is the rationalization that a pattern we see will repeat or persist. (Tulip bulbs, art, wine, and Beanie Babies are things we enjoy, not investments).
Simple Asset Allocation to daily liquid stocks and bonds continues to outperform the majority of smarter model allocations. The large, diversified, and liquid simple global stock and bond model, should continue to meet the needs of most long term (5+ years) institutional and individual investors. Since 1950, of monthly rolling 5 year returns for 60/30/10 never lost money and 41% of returns were 10% or greater. For 100% stock investors over the same rolling 5 year period, 92% of returns were above zero with 59% greater than 10%. Simple works for most people, just like serving Vanilla and Chocolate ice cream works for most people. CKW believes asset allocation can add value over time. The stock market represents a basket of opportunity to invest in successful businesses that provide profitable and desirable solutions to the world. Investment professionals focusing on alpha, beta, SD, correlation, and the rest of the alphabet soup, please do not forget about Rate of Return.