Stocks for the long run — wrong.
That’s the view of two business professors whose research into the stock market blew away conventional wisdom that investing in stocks over the long haul — the so-called buy-and-hold theory — lowers volatility.
Not so, say the professors, whose research paper yesterday won them the first Whitebox prize — awarded to outstanding financial research.
“Their paper serves as a bold, bright neon sign proclaiming ‘investors beware,’” Whitebox CEO Andrew Redleaf said in awarding the prize to Lubos Pastor of the University of Chicago and Robert Stambaugh of the Wharton School at the University of Pennsylvania.
“Our basic message is that stocks should look a little riskier than they did before,” said Stambaugh.
The new research shows that uncertainty about the future increases the potential for more volatility in equities over the long run.
That might seem like common sense to investors who lived through the 2008 crash.
If the new view were to become mainstream, Stambaugh said, “relative values would drop and the expected rewards would be higher.”
Oddly, the view of the two academics contradicts that of Stambaugh’s more famous Wharton colleague, Jeremy Siegel, whose famous tome, “Stocks for the Long Run,” popularized stock investing.
Siegel helped propel a generation of baby boomers — and their 401(k)s — into the stock market during the 1990s.
Siegel, along with hordes of financial advisers and brokers, have argued that investors should hold on to stocks during volatile periods because over time, the rewards are worth it.
But research doesn’t bear that out, said Stambaugh. He added that his and Pastor’s research throws cold water on the target-dated funds that have become the latest fad among 401(k) investments.
Robert Stambaugh, stock market, research paper, Lubos Pastor, University of Chicago, Jeremy Siegel, Andrew Redleaf, investors, business professors, the Wharton School