If a tree falls in a forest and no one is there, does it make anoise? If a very credible and well-recognized investment researcherconvincingly refutes an oft-misquoted study and no one paysattention, does that refutation still exist?

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The two “BHB” papers—the first one published in 1986 by Brinson,Hood, and Beebower, and the second published in 1991 by Brinson,Singer, and Beebower—are often incorrectly cited as “proof” thatasset allocation is responsible for 91.5 percent of a portfolio’sinvestment returns.

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This “evidence” is then used to convince investors (bothprofessionals and retail clients alike) that stock selectiondoesn’t matter. In the end, goes this logic, asset allocationtrumps stock selection.

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However we end up here (read “How’d an Innocent Fiduciary Like You End Up AssetAllocating?FiduciaryNews.com, June 10, 2015), usingBHB exposes fairly significant problems. First, that’s not what thepaper concluded. BHB merely stated that asset allocation (actually“portfolio policy”) accounted for 91.5 percent of the “variabilityof returns,” not the returns themselves.

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This statement, some have said, is akin to saying “a rising tidefloats all boats.” This is not new. We’ve known this since thesecond paper was published in 1991.

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Yet this myth that “asset allocation is responsible for 91percent of a portfolio’s performance” grew. In today’s terms, youmight say it went viral.

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That upset not a few academics, whom I’m guessing don’t like tosee the work of their colleagues misquoted, misinterpreted, and, ingeneral, used in a misleading way. Apparently, they especiallydon’t like when this happens to data they consider suspect.

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In 2000, Roger Ibbotson, already well-known for his presence inthe rarified air among finance professors, conducted a follow-upstudy to BHB.

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He found the myth that stock selection didn’t matter to be justthat—a myth.

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He wrote about it in 2000 and again in 2010. Other studiesconfirmed and refined his study.

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For the last decade and a half, it’s pretty clear BHB—the rockupon which asset allocation was built (well, at least upon which itwas sold to the public) —was not as solid as originallythought.

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In a perfect world, BHB would have faded into history. Yet,there it remains, in nearly every investment sales pitch outthere.

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I’ve noticed, unlike the infamous Vanguard and Fidelity adswhich blatantly mischaracterized BHB, today’s pitch generally doesuse the phrase “variability of returns” somewhere in the body ofthe text. But the headline still shouts out “What Drives InvestmentPerformance,” clearly implying the hands on the steeringwheel belong to our old friend asset allocation.

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Asset allocation might have its merits. It might, in fact, becritical in very specific situations. But the reasons for itsrelevance don’t lie with the false representations of BHB. That westill see BHB being used in industry marketing literature onlyfurther condemns the credibility of a sector that can’t afford tojeopardize any more of its trustworthiness.

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Collectively, we need to stop using the BHB study. This startswith the compliance departments. Why do they continue to approvemarketing collateral that references BHB?

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Don’t they know the huge liability risk that assumes? Will ittake the trial lawyers to finally convince firms to send BHB downthe memory hole of research papers that are past their expirationdate?

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Worse, does hiding under the skirts of BHB lead financialservice providers towards a false sense of security? What if thereare bigger problems with asset allocation that we’re missing justbecause we believe in the sanctity of BHB? What if those problemspose a greater threat than merely misquoting a controversialpaper?

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Ibbotson’s work has never been successfully challenged. It hasbeen ignored.

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Hiding the head of asset allocation in the sand will not changethe facts. Sooner or later, a noise will be heard. The onlyquestion is: How loud will it be?

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).