Dalbar recently released their 2009 edition of their Quantitative Analysis of Investor Behavior (QAIB).  (You can access an extract here.) 

As usual, the news is not pretty.  Investors managed equity returns of 1.87% over the last 20 years, while the S&P 500 returned 8.35%.  In other words, investors lagged the market by almost 6.5% annually.  In fact, investor returns in equities were lower than inflation.

Dalbar’s conclusion–under the heading Bad Decisions Lead to Poor Results (!)– is that when the going gets tough, investors panic.  This is the fifteenth year that they have put out their QAIB, so they’ve got a pretty good idea they’re right on this point.  I would have to agree with them, since everyone in the industry sees the same pattern in their account flows.

But perhaps there is more to it.  It’s easy to imagine investors getting panicked out of the stock market.  It’s quite volatile at times and can have some hair-raising declines.  Fixed income, on the other hand, is generally thought of as a very staid investment, something appropriate for the old and stuffy, like the classic t-shirt with the Monopoly guy that reads “Gentlemen Prefer Bonds.”  Fixed income is presumed to be something that you buy and hold for the income stream, not something that is actively traded.  Yet, surprisingly, fixed income investors do no better on a relative basis.  Their return over the last 20 years was just 0.77%, again about 6.5% annually worse than the Barclays Aggregate Bond Index, which came in at 7.43%.

One unfortunate commonality between stock fund and bond fund investors was their average holding period:  way, way too short.  Equity investors held for an average of 3.11 years, while fixed income investors held for 2.69 years.  The average business cycle is longer than that!  Think about it–the only “expertise” an equity investor had to have to earn 8.35% over the past 20 years was patience.  The investor didn’t have to do anything clever or perform any market analysis.  The returns were there if you were simply willing to be a slug and not do anything!  If you are wiggling in your seat every time you invest, perhaps you have RDD–Return Deficit Disorder.

Active investment management attempts to improve upon market returns, and there are several proven methods for achieving those excess returns.  But none of them are going to be very successful until the investor can sit still through at least a couple of market cycles.   Do your due diligence thoroughly, choose carefully, and then sit tight and let the process work.

40 Responses to Dalbar

  1. […] like to use the DALBAR numbers to drive home the point that retail investors fail to time the market correctly.   The most […]

  2. […] Institutions do it poorly (see background post here ), and retail investors do it horribly (see article on DALBAR  ).  Why is it so […]

  3. […] We’ve talked about this type of behavior before. […]

  4. […] Age Of No More Tears Investing,” Forbes, 8/17/10).  Surely, this time will turn out better than all the the times the masses have felt so strongly about a given investment […]

  5. […] Age Of No More Tears Investing,” Forbes, 8/17/10).  Surely, this time will turn out better than all the other times the masses have felt so strongly about a given investment […]

  6. […] that you can do to defuse their anxiety and to reduce the behavior penalty on their returns is likely to be as profitable as any investments you can make in their […]

  7. […] 4. Persist.  Markets are going to be uncomfortable at times.  You’ve got to stick with a strategy through thick and thin to reap the best returns.  It’s most important not to abandon a sound strategy when it is really uncomfortable–that’s what causes investors to perform poorly.  […]

  8. […] to buy on dips.  By doing so, you are essentially doing the opposite of most retail investors, as measured by DALBAR, for […]

  9. […] Anleger in Aktien-und Rentenfonds performen langfristig 6,5% p.a. schlechter als jeweilige Index: Dalbar Dalbar recently released their 2009 edition of their Quantitative Analysis of Investor Behavior […]

  10. […] Institutions do it poorly (see background post here ), and retail investors do it horribly (see article on DALBAR  ).  Why is it so […]

  11. click here says:

    My spouse and I stumbled over here coming from a different page and thought I might check things out.
    I like what I see so i am just following you.
    Look forward to going over your web page for a second

  12. Hey there! This post could not be written any better!
    Reading through this post reminds me of my previous room mate!
    He always kept chatting about this. I will forward this page to him.
    Pretty sure he will have a good read. Thank you for sharing!

  13. this site says:

    Greetings! Very helpful advice in this particular article!
    It is the little changes that will make the biggest changes.
    Many thanks for sharing!

  14. this site says:

    I loved as much as you will receive carried out right here.
    The sketch is tasteful, your authored subject matter stylish.

    nonetheless, you command get bought an impatience over that you
    wish be delivering the following. unwell unquestionably come
    more formerly again since exactly the same nearly a lot often inside case you shield this hike.

  15. Hi, i read your blog from time to time and i own a similar one
    and i was just curious if you get a lot of spam remarks?
    If so how do you stop it, any plugin or anything you can
    suggest? I get so much lately it’s driving
    me mad so any help is very much appreciated.

  16. this site says:

    That is very interesting, You are a very skilled blogger. I have joined your feed and look forward to
    looking for extra of your fantastic post. Additionally, I’ve shared your site in my social networks

  17. Louie says:

    I just like the helpful info you provide in your articles.

    I’ll bookmark your weblog and test again here regularly.
    I’m relatively certain I’ll be informed many new stuff right right here!
    Good luck for the following!

  18. Simply desire to say your article is as surprising.
    The clarity on your put up is simply nice and i can think you’re a
    professional on this subject. Well together with your permission allow me to clutch your feed to stay updated with coming
    near near post. Thank you 1,000,000 and please
    keep up the rewarding work.

    My webpage extreme weight loss tv shows

  19. vegan diet says:

    vegan diet

    Dalbar • Systematic Relative Strength • Dorsey Wright Money Management Systematic Relative Strength

  20. Aleisha says:

    Hello friends, how is everything, annd what you want to say concerning this piece of writing,in my view its truly amazing for me.

  21. Kristie says:

    I like the helpful info you provide in your articles. I will bookmark your blog
    and check again here regularly. I am quite sure I will learn lots
    of new stuff right here! Good luck for the next!

  22. Getting lost on the planning takes place. Funeral home owner Daren Sternad,
    of Pocola, OK to George & Lucy Richard thales Urchison. Walter Lawrence Urchison, 88, of Arlington as well as other unusual accommodations — is the last day of loss, it is a
    chemical derived from grain. Such as this one, it can bring great comfort to
    friends and church family was gathered at a location hundreds of thousands of opinions or advice.

    Feel free to surf to my blog … http://www.whitepages.com/people/Katy~Landscaping-Irrigation/Katy-TX/e0u0j3c

  23. Elisha says:

    Experienced plumbers will have to do a remodel of a consumers lot of things
    that must occur in the early detection of DNA sequences,
    and are susceptible to rot. This will give you and your contractor and home buyers had contracted only with reputable service
    providers can provide additional turning lights and signals to the
    repair job or any industry.

    my weblog; site (Elisha)

  24. Lakesha says:

    Paragraph writing is also a excitement, if you be acquainted with after that
    you can write if not it is complex to write.

  25. google says:

    s more, Google Play has exceeded its twentieth million download.
    I have written many articles in different ITcertification as well as he has a vast experience
    in IT industry. This information increases conversions from your potential customers.

  26. Dominick says:

    To get the views of people apply for a set work schedule
    and I knew this because the most preferred contractor to build a small permanent staff and the Illinois Pollution Control Board.
    Would any references be willing to offer an Atlanta roof replacement.

    My web site; homepage (Dominick)

  27. Hello there, just became alert to your blog through
    Google, and found that it’s truly informative.
    I’m gonna watch out for brussels. I’ll be grateful if you continue this in future.
    Lots of people will be benefited from your writing. Cheers!

  28. Buy My House says:

    Hello my family member! I want to say that this post is awesome,
    great written and come with approximately
    all vital infos. I would like to peer extra posts like this .

  29. Evangeline says:

    Attractive section of content. I just stumbled upon your weblog and in accession capital to assert that
    I get in fact enjoyed account your blog posts.
    Any way I will be subscribing on your feeds and even I success you get entry to persistently quickly.

  30. Hey I know this is off topic but I was wondering if you knew
    of any widgets I could add to my blog that automatically tweet my newest twitter updates.
    I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have some
    experience with something like this. Please let me know
    if you run into anything. I truly enjoy reading your blog and I look forward to your new

    My web-site hungry shark evolution hack [hungrysharkevolutionhack1.wordpress.com]

  31. I pay a quick visit each day some web sites and sites to read articles, but this website offers quality based articles.

  32. ginger says:

    Thanks a bunch ffor sharing this with all people you really recognise what
    you are talking approximately! Bookmarked. Please additionally visit my
    web site =). We will have a link exchange contract among us

  33. I’m gone to inform my little brother, that he should also go to see this weblog on regular basis
    to obtain updated from latest information.

    my web site – modern furniture kitchen|KM1 modern furniture charlotte nc|KM2
    affordable decor|#KM3 modern furniture new york city|#KM4 including
    contemporary|#KM5 modern furniture tumblr|#KM6 vintage
    chairs|#KM7 diy (do-it-yourself home decoration)|#KM8 contemporary christian music|#KM9 modern furniture queen street west|#KM10 dollhouse furniture|#KM11 modern furniture queens blvd|#KM12
    modern furniture woodsville nh|#KM13 interior decor|#KM14 main furniture|#KM15 antique lamps online|#KM16
    sell modern|#KM17 modern furniture yaletown|#KM18 furniture store|#KM19
    modern furniture houston|#KM20 find modern furniture [#Jai#]

  34. The latest range to be announced is a set of dolls for the TV Special Freaky Fusion.

  35. door bells says:

    You can add an SD card to expand the capacity up to 32GB card to hold 10,000 songs, though I can’t image anyone who would have that many visitors to get through a playlist
    like that. The runner has on a white t-shirt and dungaree pants.
    Remember to keep a record of the business and the number for future reference.

  36. IR night vision The door bell phone support IR
    night vision. Find free printable pumpkin carving stencils and patterns online for Halloween 2010 here.
    In fact, the only thing i – Books lacks is a big
    library of titles, which will come in time.

  37. baju wanita says:

    Sometimes some styles of underwear can seem a little complicated.
    Smaller on the top and bigger on thhe bottom defines this body
    type. Quality jewelry will add an elegance to your
    plus size dress. The main fascination of the young
    generation with fashion is to look different.

  38. I used to be suggested this website by means of my cousin. I’m no longer sute whether or not this post
    is written by way off him as nobodyy else realize such detailed approximately myy difficulty.
    You’re amazing! Thanks!

    Feel free to surf to myy webpage; Dr. Jonathan Ramsay health practitioner

  39. piano clases says:

    of course like your website but you need to test the spelling on quite a few of
    your posts. Many of them are rife with spelling problems and I find it very bothersome to tell the
    truth nevertheless I’ll definitely come again again.