Ibbotson also took issue with Arnott’s use of the Shiller price-to-earnings ratio as a measure of valuation. Ibbotson described a trader trying to time the Internet bubble who sold out of the market in the mid 1990s when valuations began to rise. “He was out years before the tech bubble, and again years before the real estate crisis,” Ibbotson says, reiterating that it was best to stay in the market long term.

As an example of when market timing backfires, Ibbotson recalled the experience of an investor he knew who started shorting tech stocks in the mid-1990s and went bankrupt. Ultimately, "he was right," but it didn't matter.

“Asset allocation should be to meet the needs of the investor,” Ibbotson says. “Once you have the ordinary intelligence to invest, you need discipline to avoid your urges.”

When asked about their personal portfolios, both men were candid. When Ibbotson said he received a personal return in the double digits from his zero-beta hedge fund at Zebra Capital Management, Arnott asked if he charged himself 2 percent in management fees while taking 20 percent in fees.

Arnott himself said he has a third of his money in emerging markets and 40 percent in PIMCO’s Short Asset Investment Fund (PAIUX), resulting in a 6 percent year-to-date loss.

“That’s OK, I have a 10 to 20 year time horizon,” Arnott said.

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