Chapter 8
Asset Allocation
‘We tend to get it wrong when the accumulated experiences and beliefs derived from the past do not provide a correct guide to future decision-making. There are two reasons … not correctly comprehending what is happening to us … (and) an inability to make the necessary institutional adjustments.’
North (2005, p. 117)
Our Martian friend whom we introduced in the box at the beginning of Chapter 5 reached some conclusions about risk but also about asset allocation, which is the high-level process of how we decide what sort of things we are going to invest in and in what proportions. He noticed several things about how asset allocation is often practised:
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