We have problems with the HVAC system in our office building. Long story short, when it’s hot outside, the heater blows hot air, and when it’s cold outside, the A/C blows cold air. At first we joked about it in the office…what a funny coincidence! But after time, the bad timing begins to feel sinister, like someone in the control room is toying with us.
Here’s a simple chart I created showing the time of day, the temperature outside, and our HVAC activity according temperature level.
| Time | Outside Temp | AC / Heat |
| 6 AM | Chilly | AC |
| 10 AM | Mild | AC |
| 12 PM | Warm | Heat |
| 2 PM | Warm | Heat |
| 6 PM | Chilly | AC |
As you can see, the HVAC system in our building is just plain wrong. Why do you care? Why does this matter?
It occurred to me that the HVAC system in our building has the same timing as a retail investor. Buy the peak and sell the valley. Fight hot air with hot, and cold air with cold. Our HVAC system and the retail investor share this important attribute: they are almost always wrong.
We like to use the DALBAR numbers to drive home the point that retail investors fail to time the market correctly. The most recent numbers show that retail investors lag the broad market by an average of 6.5% annually (read this article again). One word describes the phenomenon – BRUTAL!
The HVAC system in our office is like the typical retail investor, loading into the market at the top and then getting out near the bottom. Our systematic process removes the psychological pressure we feel as investors (emotion), by forcing us to manage our portfolios according to consistent, tested rules. With emotions taken out of the equation, we can filter through the short-term noise and focus on the long-term results.
P.S.– We are working on the investor behavior thing. The A/C is a lost cause.
