Thanks, Joanna _________________________
In the 2/25 issue of Barron's, Ableson wrote the following:
"Dalbar, a Boston-based outfit that for a quarter of a century has been specializing in doing a wide range of research on financial service outfits, conspicuously including mutual funds, recently unveiled its findings on a study of how equity fund holders fared in the late, great bull market.
And what it discovered is either shocking, if you're shockable, or just plain startling, if you're not. For, according to Dalbar, in the stretch from 1984 through 2000, when the S & P racked up an average annual return of 16.3%, the average equity fund investor wound up with a yearly return of a mere 5.32%. Not good.
As Steve points out, the poor soul would have been better off buying Treasury bills, which, over the same span, averaged a yearly return of 5.32%. Of course, he would have missed the chills and thrills of, among other things, the 1987 crash and the great leaps forward in the late 'Nineties. And he would have missed out commpletely on being able to exaggerate how well his stocks were doing to the neighbor (the same on who has been out of work for six months).
On the other hand, he might not have those suitcases under his eyes from waking up at 3 a.m. and staring blankly into the dark.
Our poor soul's returns from his equity fund investment not only trailed those on the S & P by a huge margin, but they also, even more peculiarly, trailed by a wide margin the returns of the average equity fund, which typically lagged the performance of the S & P in the years covered by the Dalbar study by a point or so annually. (The modest difference between the S&P and the average fund is pretty much the result of the burden on the latter's performance of commissions, kindred costs and -- lest we forget -- management fees.)
Had the study encompassed 2001, returns of the S&P 550 and the equity funds obviously would have been even lower. And, so, alas, would have been the average return of our poor soul's portfolio.
The explanation for the punk showing of the individual equity fund investor in the 84-00 period examined by Dalbar is, in no small measure, his inevitable tendency to pile into funds at the top of markets, accompanied by another, equally consistent tendency to lighten up at bottoms. In this particular stretch, the impact of buying high and selling low was massively magnified by the incredible rise and fall of the tech stocks and the ultimately baleful effects on the funds that loaded up their portfolios with them.
As Steve notes, moreover, our poor soul's meager returns also stemmed from a sad habit of chasing the latest hot fund and shifting his money into it just before it starts to cool.
In sum, during the biggest and longest bull market ever enjoyed by investing man, the only place the average equity fund investor could have put his money and gotten less back for it was gold and Las Vegas.
It's when the music stops and the glasses are suddenly empty, when the party's over, in other words, in the cold, unforgiving light of day, that the reckoning takes place. Which is what has been happening and why investors are feeling deflated and not especially friendly toward the stock market. And why, absent a full-fledged return of the bubble, which doesn't seem in the cards, that sourish sentiment is not likely to change anytime soon.