daytrade diaries... february 1, page-101

This brief article points out asset allocation may be far more important than market timing or stock selection. Perhaps it time we sent more time on identifying the asset sector we want to be in because if we are correct all stocks in this sector should perform well. Select the wrong asset sector & we can expect below average returns.

Article:
"Importance of Asset Allocation to Portfolio Performance


Repeat 20 Times - 90% of Portfolio Performance Comes From:
Asset Allocation!

Dramatic support for the importance of asset allocation is provided by a study of 91 large pension plans covering the period 1974 through 1983. 1 The study sought to attribute the variation in total returns among the plans to three factors: asset allocation policy, market timing, and security selection. The study dramatically supports the notion that asset selection policy is the primary determinant of investment performance , with market timing and security selection both playing a minor role. The study was subsequently updated with additional data and once again arrived at the same conclusion.2 The results: asset allocation policy explained 91.5 % of the variation in total return among the pension plans. The selection and market timing factors, by contrast, explained only 4.6% and 1.8% of the variation, respectively."

Excerpted from: Asset Allocation, Balancing Financial Risk, Second Edition, Forward by Sir John Templeton and written by Roger C. Gibson, pages 12 and 13.

Footnotes:

1. Gary P. Brinson, L Randolph Hood, and Gilbert L. Beebower, ?Determinants of Portfolio Performance, Financial Analysts Journal, July-August 1986, pp. 39-44.

2. Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower,
?Determinants of Portfolio Performance II: An Update, Financial Analysts Journal, May-June 1991, pp. 40-48.
Regards
Buffett