"The underlying theoretical proposition for buy-and-hold investing, which is the idea that stocks outperform bonds and cash over long periods of time because markets are efficient ... all of that has been disproved. Markets have shown that they aren't efficient, investors aren't rational, and ... when you buy stocks that have become expensive, you have minimum hope of achieving expected average returns."
Today's investors can no longer afford to put large sums of money into expensive assets, he says. This environment calls for tactical money management, especially if we are in the cyclical, long-term bear market that Solow fears has already begun.
At the core of his money management strategy is tactical asset allocation, one of many types of active management strategies. This one involves a diversified portfolio that includes multiple asset classes with percentage weightings that change as the market moves or as the perception of the market's risk changes. This portfolio can change from day to day, and what it consists of one week may not be what it consists of the next.
"Asset classes are evaluated to ensure that the portfolio is diversified and then they're assessed for their relative risk. ... If the risk is lower in one asset class than another, we might add to the lower-risk asset classes and take profits out of the higher-risk ones ... to tactically manage risk," he says.
Portfolio assets, Solow says, should change as market valuations change, the market cycle changes, or investor technicals and momentum change.
Unfortunately, finding a qualified investment manager who understands and successfully practices tactical asset allocation is not easy. Morningstar doesn't have a category for tactical asset allocation funds, so there's no way to evaluate how they perform relative to their peers.