{"id":1113,"date":"2010-10-19T11:16:10","date_gmt":"2010-10-19T18:16:10","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/cqtwo\/?p=1113"},"modified":"2011-01-04T20:05:14","modified_gmt":"2011-01-05T03:05:14","slug":"no-alpha","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/cqtwo\/2010\/10\/19\/no-alpha\/","title":{"rendered":"No alpha"},"content":{"rendered":"

I believe that my primary lever as a long-term investor is asset class allocation,\u00a0the decisions that I make regarding the proportion of assets I choose to place in particular classes of investments. \u00a0I generally ignore market timing and asset selection within<\/strong> classes; that is, I don’t pretend to know when to buy or sell or even what to buy or sell within an asset class. \u00a0I am sensitive to\u00a0costs because one way to improve returns is by limiting expense ratios, 12b-1 fees, loads, brokerage costs, and advisor’s fees. So I usually invest in index funds and electronically traded funds (ETFs) linked to benchmarks.<\/p>\n

I thought that this so-called modern portfolio theory<\/a>, especially the allocation vs. selection part, was generally accepted as the normal way to invest but lately I’ve had some conversations that indicate that that isn’t necessarily the case. \u00a0(I.e., investing only in real estate, buying gold because the world is coming to an end, picking the best mutual funds of the last x years, a hot tip on some cancer treatment drug in early stage clinical trials; the list is endless.)<\/p>\n

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With that in mind, here’s a list of three recommended books, aimed at the responsible investor,\u00a0laying out this approach:<\/p>\n