Invest Smarter, Not Harder
DALBAR’s annual update of the Quantitative Analysis of Investor Behavior (QAIB) study reveals a clear pattern. When we make moves in our portfolio, we are more likely to be losers than winners.
Key Findings
The study takes an academic approach to fund flows for individual mutual funds. It shows:
- When people are buying stocks
- When we are selling them
The study consistently shows that we buy high and sell low.
From 1992 to 2021, the average equity investor gained 7% each year. In contrast, the stock market experienced an annual increase of nearly 11%. This includes all the crashes that investors remember well.
Why Does This Happen?
Simple. When markets fall, we view stocks as risky instead of seeing them as “on sale.” When markets rise, we focus on how much money we are making rather than the risks involved.
The media promotes this toxic message with great intensity. They tap into our emotions to gain attention.
A Better Approach
It is much better to create a long-term investment plan. Here are some steps to follow:
- Create a written Investment Policy Statement. This will help you resist making impulsive changes at the wrong time.
- Make portfolio adjustments that aim to add value over decades, not just months.
Reflection
So, what do you think?
- Do you know how your portfolio performed last week?
- Does that knowledge provide any value to your investment process?
- Do you have confidence in how your portfolio will perform over the next 20 years?
- Does that knowledge add value?