Title: martingale in sheep's clothing
Product review: So I'm studying modern portfolio theory in school including asset allocation and the efficient frontier thesis when I stumble upon William Bernstein's texts. In his books are recommendations to learn about value averaging as descibed in this book by Michael Edleson.As I begin reading, I quickly realize this is simply the stock market version of the Martingale gambling system which in stock market terms is a short volatility or mean reversion strategy. This text explain how this strategy is a winner, but in reality, it only works if the market is always going up year over year. In a big market crash like that of 08, this strategy gets crushed as it goes all in after the first dip.Maybe some have faith in this methodology but personally, I think it's a statistical gimmick that doesn't respect the fat tails of the real marketplace. I know this strategy has a cult following, but I won't be participating in it or dollar cost averaging.
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