Hi Guys,
This MarketWatch referenced article should really not shock anyone.
It is simply another report on the very consistent Dalbar studies, but with an extended comparative array of investment categories. Typically, the Dalbar individual investor returns analyses are only contrasted against the S&P
500 long-term returns as the standard of performance measurement.
These comparative performance measures have been so consistently against the private investor that I elect not to Link them on the MFO Board. It is “old stuff”, and not particularly remarkable.
The most noteworthy data in the chart presentation are the 20-year average returns for the vast array of categories that were included in the chart itself. Will these disparate results remain intact in the future or will there be a regression-to-the-mean? Therein rests the investor’s challenge.
If you are dismayed by the 20-year data presentation, you will be even more offended by the poor 30-year performance record attributed to individual investors. It too emphasizes the humiliating and destructive performance of Joe Six-Pack. Here is a Link to a recent Jason Zweig NY Times article that focused on this same topic for a 30-year period:
http://online.wsj.com/news/articles/SB10001424052702304655304579551914113672646The article does a workmanlike job of explaining its title: “Just How Dumb Are Investors?” Zweig finds an easy answer to that vexing question which was discussed on the MFO Board a few weeks ago.
Zweig observes that “Investors aren't nearly as dumb as Dalbar's numbers suggest. But everyone can still get smarter.” Hope springs eternal.
The Dalbar methodology is surely not perfect. Even Dalbar has acknowledged that observation. However, it is sufficiently structured to capture the overarching investor lackluster performance. Absolute numbers are method dependent.
It appears that individual investors suffer from a triple investment whammy. Morningstar constantly reports that actively managed funds usually underperform their representative benchmarks. Because of poor timing or other financial commitments, fund investors typically collect returns that are below those generated by the funds they buy. Embedded within that finding is that investors tend to favor the “hot-hand” behavioral style of performance chasing. All these misbehavior factors, and many others, erode investor annual returns.
The numbers change depending on the timeframe and the study methodology, but the dismal investor rewards pattern has remained intact for decades. Not that its especially good news, but institutional agents also underperform their respective benchmarks, although by a slightly lesser magnitude than the citizen investor.
These data comparisons are one of the persistent arguments for a buy-and-hold strategy for extended, but not forever, timeframes.
Best Wishes.
