Pacific Views

Accidental Market Timers

The Seattle Times runs a piece on investors with bad timing.

...According to the latest Quantitative Analysis of Investor Behavior issued by Dalbar, investors who pour money into stock funds on market upticks and dump funds on downturns aren't protecting themselves, they're killing themselves.

...The result of those moves, according to the Dalbar study, is that the average equity-fund investor earned 2.57 percent annually for the past 19 years.

That's less than inflation (3.14 percent) and way short of the 12.2 percent annual gain for the Standard & Poor's 500. ...

This is the public whose Social Security income the Republicans want to put into the stock market? Consider this 1999 article about the political effect of the new investor class:

...The percentage of Americans who owned stocks doubled between 1965 and 1990. Then, between 1990 and 1997, it doubled again. Only one in 10 American adults owned stock a little over three decades ago; today, according to a Peter Hart survey conducted in April for NBC and the Wall Street Journal, 53 percent of all adults now own at least $5,000 in stock. ...

Consider that starting the following year, we've had two years of recession between then and now, so a lot of investors will have been weeded out. The average investor makes under the inflation rate, and less than 1/4 of the major market index.

Remind people of this next time you hear a Republican pitch to 'give our retirement money back to us.' Investment is a highly specialized skill. It's hard, even for people who know what they're doing. It isn't kind to panicky novices, and there are no do-overs.

I know just enough about markets to know that I don't know jack about making money in markets. I don't feel bad about that, because I've never put in the necessary time to study the subject. It would be like feeling bad about not understanding the intricacies of the Dewey Decimal System. I have plenty of friends whose similar lack of knowledge was proved spectacularly well before the official start of the current recession. I'm not putting them down, either. None of them were professional investors.

In 2001, there were congressional hearings on the possibility that an untoward number of investment advisers had misled people with rosy descriptions of market prospects when they knew otherwise. The speakers (both the elected officials and the witnesses) all seemed to be firmly convinced that indeed, the majority of the investing public was easily misled and didn't know what they were doing. The representatives had the angry constituent letters to prove it.

It won't be a boon to society to take a safe, guaranteed retirement income stream and turn it over to mass speculation by the inexperienced.