|A strategy for the well-informed|
|William F. Sharpe has
received international acclaim, culminating in the Nobel Prize in economic science, for
his work on asset markets. If there were an easy way to get in and out of the market
("time the market") for profit, he'd know it. If there were an easy way to pick
stocks and get high returns, he'd know that. So what does he do with his own money?
Consider what Sharpe told an interviewer from the educational publication Classrooms
Q: Do you invest your own money in broadly diversified stock index funds?
A: I certainly do.
Q: Do you try to pick individual stocks or time the market?
A: No. I invest in various funds covering bonds, large stocks, small stocks and international stocks.
(Source: Interview with William F. Sharpe in Classrooms and Lunchrooms, Spring 1992.)
The more you know about asset markets, the more you'll appreciate the strengths of "buy and hold index funds" as a long-term investment strategy.
The more you
Paul Samuelson, the 1970 Nobel laureate in economic science, was an early proponent of "buy and hold index funds." The evidence has only become stronger since Samuelson first weighed in on the issue. Samuelson's 1948 text is a classic; it continues to be revised with the participation of Yale's William Nordhaus.
You probably wouldn't want to buy
Samuelson-Nordhaus for its investment material, which is a tiny fraction of the overall
book. But if you want a comprehensive summary of economics, it's good. Click here.