A long time ago – Stock Picking and Market Timing – Investment Research was the key.
Yesterday – Stocks offer better returns than bonds in the long run Stocks are riskier than bonds in the short run. Indexing beats stock selection – Asset Allocation and Benchmarks were keys.
Today – Separation between alpha and beta. Absolute rather than relative return – Risk Management, econometrics and psychology are keys. We need to move away from the concept of benchmarks, information advantages and simple buy-and-hold strategies. Adopt a dynamic, flexible approach to the investment problem.
Hedge Funds are one Solution