In this book written for the individual investor, Mr. Martin shares his investment philosophy and methodology, called asset-class investing. The foundation of asset-class investing is the Nobel Prize winning research of Harry Markowitz and William Sharpe, called Modern Portfolio Theory. If this is true, passive investors can get at least as good results as active investors. Asset-class investing principles show us no one can consistently hope to beat the market.
Passive investors buy and hold asset classes.
According to Markowitz and Sharpe, the investment markets tend to be efficient . The market compensates for the expected return of an individual stock by adjusting the stock price so the stock will tend to have a similar return as other stocks in its asset class. Instead of selecting individual stocks, investors may get a similar return with less risk by buying an asset class investment, such as an Standard and Poors 500 index mutual fund. In addition to managing the return side of the equation, the investor should focus on managing risk. Risk can be managed by diversifying asset classes.