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Investing legend Burton Malkiel on the sell-off: Sit tight and don’t try to time the market

One of the pioneers of passive index investing hasn’t let 2020’s unpredictable volatility shake his thesis.

Burton Malkiel, professor emeritus of economics at Princeton University and author of the seminal finance book “A Random Walk Down Wall Street,” told CNBC’s “ETF Edge” on Monday that investors would be wise to “sit tight” and “stay the course” in light of the stock market’s latest sell-off.

Malkiel’s book, now in its 12th edition, kickstarted the investing industry’s foray into indexing, influencing top minds including Vanguard founder Jack Bogle, the creator of the index fund.

Dow Jones Industrial Average futures were higher Tuesday morning after a 650-point pullback in the previous session driven by spikes in U.S. coronavirus cases and ongoing uncertainty around fiscal stimulus.

“Eventually, we’re going to have treatments. We’re going to have a vaccine. Eventually, we are going to have stimulus. Maybe not before the election, maybe not before even a new administration, but it’ll happen,” Malkiel said.

“And so, I say to investors: Don’t try to time the market. Certainly don’t sell out now,” he said. “The best investors are ones that don’t try to time the market.”

Instead, Malkiel suggested they “stick with index funds,” emphasizing that those who try to predict the market’s direction “won’t be able to do it.”

“At the beginning of the year, so many pundits were saying value is cheaper relative to growth than ever before, and what happened is that growth trounced value,” he said.

“If you’re in an index fund. You’ve got growth and value. You’ve got, if it’s a broad-based index fund, … small cap and large cap,” he said. “You’ll never be able to predict when one is going to be in the ascendancy and you’re much better off to just be broadly indexed in a very low-cost index fund.”

Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, blamed a confluence of factors for the market’s latest decline.

“We’ve got some big earnings coming out this week, folks like Caterpillar. I think that’s getting a lot of people focused on industrials, which have had a great three-month run and are one of the things really taking it in the teeth,” he said in the same “ETF Edge” interview.

Beyond that, “the virus is going to be here. Stimulus isn’t, at least for some period of time,” Nadig said. “That leaves us really on the back of what companies are actually able to do. It’s hard to get behind industrials, energy and those sectors that have really been hurt [in the sell-off].”

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