Hi Fung,

I think you and I are likely in agreement, but that we have a nomenclature problem. Specifically, the words you are using "short-term" and "long-term" are subjective terms, not objective terms. If I understand your point, it is that you are saying the volatility of returns shrinks over time for those that buy and hold, yes? If so, I have no disagreement with that and it is certainly true. But if I purchase a security today when say the value of COST falls by 40% due to emotions/volatility and then I hold on for ten years. Not only is it likely that I get COST's earning growth, your point, but I also get excess return, or alpha because of purchasing due to short-term emotions. What Tom is saying, is that long-term returns are improved by taking advantage of emotions, which occur on a day to day basis. To me, this is a likely explanation why there is a value effect in the market.

If this isn't what you intended, then please feel free to correct me.

Yours, in service,

Jason