The follow is in response to Erik McCurdy’s article, A Trading System that Disproves Efficient Markets, which appeared last week:
Dear Editor,
Once again I laud Advisor Perspectives for their even-handed presentation of the facts and theories surrounding modern portfolio theory, efficient markets and the age old debate between active and passive management.
With respect to Mr. McCurdy's very informative and even more entertaining presentation of a myriad of oscillating charts and "overvalued" graphs, I can only say it is always easy to look back with perfect and precise clarity as to what choices would have been best for investors. If McCurdy’s system is so reliable, I doubt that he would share it with anyone, least of all a rather large group of financial advisors with a keen eye toward learning and a pile of investable client assets.
He absolutely is correct about over- and undervaluation in that these conditions do occur but can only be accurately viewed in retrospect. The simplest way to address this is to have a disciplined rebalancing program. For most clients, we use an absolute 5% rebalance trigger on the overall allocation and rebalance at least annually, which allows us to sell into overvaluation and buy into undervaluation.
Mr. Mc Curdy should consider the efficiency of driving forward at a high rate of speed while exclusively focused on what is happening in the rear view mirror. Disaster, at some point in time, is inevitable.
Best,
Brian M. Murphy
Founder, CEO
Pathways Financial Partners
Tucson, Arizona
