Academically Verified Investment Strategies that Failed

I give these brilliant investment strategies a failing grade.

As advisors and investors, we have evolved over the past several decades from foolish tactics such as picking hot stocks and market timing to more sophisticated strategies. Those sophisticated strategies are supported by peer-reviewed academic rigor. Yet they have failed almost as badly. Here is a look at several failed strategies along with some take-away lessons for the future.

Stocks for the long run – Jeremy Seigel

In 1994, Wharton professor Jeremy Seigel first published his ground-breaking book, Stocks for the Long-Run – The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. It was based on almost 200 years of market history.

The data indicated that the worst 20-year inflation-adjusted return for bonds was an annualized loss of 3.1 percentage points while stocks bested inflation by one percentage point, annually. Thus, stocks were actually less risky than bonds as long as one stayed the course. And the worst we could expect is that stocks would only best bonds by 4.1 percentage points. Who could refute 195 years of history?

But the markets didn’t read the book.

In the 20.5 years since the beginning of this century (12/31/99 ), a portfolio of half U.S. and half international stocks, rebalanced annually, returned 4.58% annually, while a Bloomberg Barclays bond fund returned 5.00% annually, according to Portfolio Visualizer. I’m using international stocks since we live in a global economy.