Stay the course during volatile times.pdf (PDF - 42KB)

Melbourne, 20 May, 2008 - One of the world's premier investment thinkers has urged Australian investors to look for long-term investment opportunities, despite continued uncertainty surrounding the US sub prime crisis.

Nearly 2000 personal investors and over 700 advisers heard renowned US economist and best-selling author Dr Burton Malkiel share his thoughts on investing during volatile times in Sydney and Melbourne recently.

Presented by Vanguard Investments Australia, Dr Malkiel said investors should "stay the course" during periods of market volatility. Dr Malkiel also warned against the perils of market timing.

"It's inevitable investors put their money in at the wrong time and pull out at the wrong time and this can be exacerbated by putting the money in the wrong types of funds - just look at the internet bubble," Dr Malkiel said.

"Investing is a zero sum game, if one investor holds the best stocks, then logically another must hold the worst, but when you take fees into account it becomes a negative sum game."

Dr Malkiel recommended investors take a Core Satellite approach to investing with a core of index funds to provide diversification and low volatility and a satellite portfolio with a range of de-correlated active investments or "bets".

Dr Malkiel also warned investors to set reasonable goals, predicting the US sub prime crisis will continue with further falls in US house prices and continued de-leveraging of US financial institutions.

"That's the great thing about indexing, even in a down year you still receive an average return."

Vanguard Investments Australia Managing Director Jeremy Duffield said: "Burton pioneered indexing with his 'random walk' theory and his accompanying book that inspired many with its profound insights into investing."

"This visit provided investors and advisors with an opportunity to hear from one of the US's most recognised economists on varied investment strategies that work across all economic cycles."

Dr Malkiel is famed for his quote "a blindfolded chimpanzee throwing darts at the Wall Street Journal could select a portfolio that would do as well as the experts" in his best seller book 'A Random Walk Down Wall Street'.

Dr Malkiel said this theory still holds true with figures showing that the S&P 500 index out performed the average fund manager over the past 5 and 10 year time frames.
"Picking stocks is like looking for a needle in a haystack and I say buy the haystack, that is, invest in an index fund."