Rick Ferri on asset allocation:
Practitioners know that the optimal asset allocation can only be known in retrospect. If your time horizon is 20 years, you’ll have to wait 20 years before you find out what asset allocation you should have had during this period to have earned the best risk-adjusted return.
This is the point so often missed by the modern portfolio theory crowd. Using historical data to come up with the optimal mix tells you nothing about how that mix may perform in the future. Thus, the argument for trend following.
HT: Abnormal Returns
