Many adherents to an active management approach to investing profess that you can successfully pick when to enter and exit markets so as to achieve a better result than the average market return.The mantra rings true for a lot of investors – surely if you put enough research and effort into it you can beat the markets.
Each year Dalbar looks at this very issue by analysing the fund flows into and out of mutual funds in the USA.(Mutual funds are like our managed funds here in Australia.)They publish their results in the Quantitative Analysis of Investor Behavior (QAIB) report. - http://www.qaib.com/public/default.aspx
The latest report has just been published and does not make good reading for the “Active Timers”.The report shows that over the course of 2011, the average equity return for investors in equity market funds was negative 5.73%.This sounds all right to Australian investors where the ASX200 returned negative 10.54% but in the US the S&P500 actually eked out a gain of 2.12%.
So the average investor underperformed the S&P500 index by 7.85%.The report also showed that bond fund investors underperformed the Barclays Aggregate Bond Index by 6.50%.
The report goes on to show that over 3, 5, 10 and 20 year time periods the average equity investor has underperformed – a massive 4.32% per annum over the 20 year period.
Yet again the Dalbar study has shown that investors who have tried to pick the best time to enter and exit markets have failed to get it right.You were much better off just holding on to the relevant index.
We in Australia may think we are smarter than the average American investor but my gut instinct suggests similar results would be replicated in Australia.