I have set in more than my share of meetings where organizations use investing consultants to engage in asset allocations. They all basically say the same thing.

“Asset allocation is the most important part of investing returns. Being out of the market at significant points sharply reduces returns over time. It is hard to beat the market.”

So these geniuses set percentages for allocation and just adjust as values change, forcing you to sell when prices go up and buy when prices are down.

This is not necessarily a bad strategy, but my problem is that there are ways to engage your brain to reduce risk. If an asset class is falling like a rock, perhaps you should just get out of the way instead of simply reallocating. Silver peaked at $50 an ounce in the 1970’s and has not been back there yet. One can reduce exposure through moving average strategies, though it may induce whipsaws some of the time.

Likewise long term treasuries are very risky right now and I would prefer to be out of them than to just reallocate to them blindly according to some formula.

Allocation consultants use reams of data and analysis to justify not doing serious work. They generate reports based on statistical history rather than a true understanding of risk. They warn that past results do not indicate future performance, yet they allocate resources as if it does.

True value players study their stocks and strive to value them relative to the market.

If institutional investors believe allocation is the key they can simply buy low cost Vanguard index funds and reallocate regularly. This is the premise of “The Gone Fishing Portfolio” by Alexander Green. But this strategy does not require expensive consultants. If you are going to pay for brains some one ought to use them.