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Malkiel: Stay in Stocks or Lose Big

By    |   Wednesday, 15 Oct 2008 08:41 AM

Burton Malkiel is bullish on equities, to borrow a phrase from bygone Merrill Lynch ads.

The Princeton University economist who played a large role in popularizing stock index mutual funds in the 1990s says now isn’t the time to abandon stocks.

“No one has consistently made money by selling America short, and I am confident the same lesson is true today,” Malkiel writes The Wall Street Journal.

He points out that just as people mistakenly pile into stocks at the end of bull markets, they also mistakenly bail out of stocks at the end of bear markets.

On the upside, “Individuals poured more money into equity mutual funds during the last quarter of 1999 and the first quarter of 2000 than ever before,” Malkiel points out.

The stock market, of course, peaked in the first quarter of 2000.

Then, on the downside, “During the third quarter of 2002, which turned out to be the bottom of a punishing bear market, investors redeemed their mutual funds in droves,” Malkiel explains.

In the long run, trying to time the market rarely works, he says.

“My own calculations show that, in the aggregate, investors who moved money in and out of equity mutual funds underperformed the buy-and-hold investors by almost three percentage points per year during the 1995 to 2007 period,” Malkiel says.

Billionaire buy-and-hold king Warren Buffett also continues to believe in stocks.

In a recent interview with PBS, he said, “You want to be greedy when others are fearful...We're seeing [stocks] that are attractive right now.”

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Burton Malkiel is bullish on equities, to borrow a phrase from bygone Merrill Lynch ads.The Princeton University economist who played a large role in popularizing stock index mutual funds in the 1990s says now isn’t the time to abandon stocks.“No one has consistently made...
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2008-41-15
Wednesday, 15 Oct 2008 08:41 AM
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