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May 09, 2013 at 02:15 PM
“Modern portfolio theory is dead. It’s an utter failure. It was incorrect to begin with.”
David Wright might be soft-spoken with a professorial tone, but he didn’t hold back with his controversial comments at NAPFA’s Spring Conference 2013 about future trends and where the markets are headed.
“We’re tactical, and don’t believe in buy and hold,” the co-founder of Sierra Investment Management said. “I am going to cheerfully attack the concept of ‘new normal.’ If this is the new normal, than God help us. This isn’t the new normal yet, but it could be in another five or 10 years.”
To illustrate his disapproval of buy and hold, Wright noted that he entered the business in 1966.
“In 1965 the Dow hit 1,000,” he explained. “Seventeen years later it was at 764. If clients were taking distributions during that period they would never have recovered.”
Wright noted that the theme of almost every conference of the past two years has been either risk mitigation or alternative investments.
“That because of the failure of the efficient market hypothesis,” he said. “It assumed markets are perfectly efficient but failed to consider behavioral economics and the role of humans. Most Nobel theories, with the exception of Bill Sharpe, have blown up. The investing public is sick of theories.”
