Asset Allocation vs. Security Selection

As I am taking a value investing course at Rotman and am also a Portfolio Manager at the Rotman Student Investment Fund , I have been actively trying to understand whether security selection is better than asset allocation strategies. This is an old and continuing debate, and I tend to take the view that asset allocation strategies are more prudent for the average investor, based on my assumption that the average investor is neither skilled enough nor has enough time to conduct appropriate security selection research. I found an article by Professor Raghuvendru Rau who teaches at Judge Business School at Cambridge, which seeks to test which is better – broad asset allocation or security selection. The paper ( link below) evaluates both strategies and also comments on past academic literature on this topic.  An interesting read, with something for proponents of both arguments.

https://www.dgfi.com/Topics/White-Papers/Asset-Allocation-vs-Stock-Selection-Evidence-From-a-Simulation-Exercise

 

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