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Comment: "Long-Term Investing": What managing drawdown risk can do to your long-term returns

Tuesday, August 15, 2017

Matthias Knab, Opalesque:

Real Investment Advice writes on Harvest Exchange:

Last week, I was having lunch with a prospective portfolio management client discussing the current market and economic backdrop and the related risk to invested capital. During our appetizer of stone crabs and lobster-corn chowder, (if you ever drift into a Truluck's restaurant I highly suggest both) he discussed how his father had bought a basket of stocks 25-years ago and had essentially performed in line with the markets during that time.

Why shouldn't he just do the same? It's a great question.

The most valuable commodity that we all have is "time." While the markets may have recently hit "all-time" highs, for the majority of investors this is not the case. They didn't sell at the previous peak, and they sure as heck didn't buy at the financial crisis lows. In fact, the reality is quite the opposite, and once again investors appear to be buying the market peak under the belief somehow "this time is different."

The chart below shows, according to the American Association of Individual Investors (AAII), investors currently have the highest allocation to stocks, and lowest to cash, since the Dot.com bubble in 2000. [View chart on Harvest]

But, even if investors have fully recovered from the financial crisis, or......................

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