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Evidence-Based Investing: M.D. Turned Financial Advisor Diagnoses What Ails Most Investors
Date:9/30/2008

TION INVESTING

The Savant EBI white paper reviews the arguments supporting the conventional approach to investing on 13 fronts. Based on the best-available empirical data available, the Savant white paper uses the EBI method to conclude:

1. Market timing fails.

2. Active money management fails.

3. High costs cause money managers to fail.

4. High taxes negate much of the return generated by active money management, causing even many "winners" to fail.

5. Using past performance to pick money managers fails.

The broad application of Evidence-Based Investing results in the following seven conclusions:

1. Index-based investing optimally delivers market returns.

2. An effective bond strategy, like the three-legged bond stool, reduces risk. Short, intermediate, and inflation-protected bonds protect against most adverse economic scenarios.

3. Small stocks add return and provide diversification benefits.

4. Value stocks offer a return premium globally.

5. Investing overseas enhances diversification and return.

6. Alternative investments, namely REITs and commodities, protect investors from inflation and challenging stock and bond markets.

7. Broad global diversification increases return and reduces risk.

As the Savant white paper notes: "In spite of the growing consensus and clear evidence against active management, the conventional active approach to investing is here to stay. Hopefully, armed with evidence and logic, the number of individual investors who get caught up in this unscientific approach will decrease. Why does the conventional view have such strong staying power? This question was asked by Nobel Laureate William Sharpe in his piece, 'The Arithmetic of Active Management.' His answer follows: 'More often, the conclusions (in support of active management) can only be justified by assuming that the laws of arithmetic have been suspended for the convenience of th
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SOURCE Savant Capital Management Inc., Rockford, IL
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