Burton G. Malkiel, Chemical Bank Chairman’s Professor of Economics at Princeton University, provided an informative and engaging presentation to an audience of about 100 people who gathered at Springdale Golf Club on October 7 for the annual fall breakfast of the 1919 Society. Dr. Malkiel is the author of the investment classic, A Random Walk Down Wall Street, one of the most popular validations of investing in index funds rather than with active stock pickers, and a new book called From Wall Street to the Great Wall, about the explosive growth of the Chinese economy.
His presentation, titled “Timeless Lessons for Investors,” wove together well-tested guidance for investors with some surprising new twists. “I go to a lot of investment conferences, and I can’t tell you how many times I hear that the old rules just don’t apply anymore,” said Dr. Malkiel. “That’s just not so.” Among the timeless lessons were:
- Do not try to time the market. History shows that when you try it, you’re more likely to buy at the top and sell at the bottom.
- Use dollar cost averaging. Buying over time, at different levels of pricing, raises your returns because you are not doing all your buying near the top and at least some of your purchases will be at market bottom.
- Rebalance your portfolio yearly to get your percentages of stocks to bonds to cash and other assets in line. “If you have 60% of your investments in stocks and 40% in bonds at the beginning of the year, if stocks rise, so will that percentage of your portfolio in stocks,” commented Dr. Malkiel. “Realigning those percentages once a year will often get you a higher rate of return—but you will always reduce your risk.”
- Diversify, diversify, diversify. On this topic, Dr. Malkiel was most passionate. “There were few places to hide during the worldwide recession. Ideally you want some investments to zig while others zag.” Bonds did that. Another area of diversification that has been especially helpful to theoretical portfolios over the past decade is emerging market equities. But it is still largely underused by individual investors. “I’d guess that almost everyone here has what we call the ‘home country bias’ in their holdings, meaning you have mostly domestic stocks,” he said, “whereas the largest growth in the past decade has come from China, at around 10%, with India and Brazil right behind.” China’s growth is expected to continue at that pace for another decade.
Another highlight of the morning was the introduction of the Foundation’s new Director of Gift Planning, Robert Sweet. With extensive experience in gift planning at Vassar College, Sarah Lawrence College, and Georgetown University, Robert joined the staff in September. Earlier in his career, he studied archaeology in Israel as a Dorot Scholar, literature at Oxford as an English-Speaking Union Scholar, and Arabic in Syria as a Fulbright Scholar.
Rachel Gray, Chair of the Gift Planning Committee, said, “We are delighted to welcome Robert, whose depth of knowledge in philanthropic planning is combined with a breadth of interests and insights. He is passionate about assisting the PHCS Foundation, bringing valuable planned giving and financial planning perspectives, and working for the benefit of each donor.”
Pictured above (left–right): Dr. Burton G. Malkiel, Chemical Bank Chairman’s Professor of Economics at Princeton University, greets guests; attendees listen to Dr. Malkiel’s timeless lessons on the market; PHCS Foundation’s new Director of Gift Planning, Robert Sweet; Dr. Malkiel fields questions on investing from interested participants.
Article as seen in Foundation News Winter 2010.