Friday, March 18, 2016

Retail investors

The average retail investor has advantages over the fund managers. However, the average retail investor does worse than the market. They buy high and sell low - a kind of herd mentality.

In quarterly summaries, Fidelity demonstrated this more than one time. It shows that most retail investors moved their investment to money market funds when the market was at temporary bottoms (or close to), and moved them to equities when the market was at temporary peaks (or close to).

It could be a good contradictory indicator if Fidelity or any fund company publishes this money market flow.

Morningstar has similar proof. From 2000 to 2010, equity funds earn an annualized return 1.6% while an average investor captured a .2% return due to moving in and out of the funds at the wrong time.

From my own observation, investors’ sentiment works in the short term, but not in the long term.

It makes ‘Buy and Hold’ look great. The best strategy is ‘Buy at the bottom and sell at the top’. It is easy to preach than practice. Can we overcome the human nature of ‘Fears and Greed’?

The majority of retail investors do worse than the market and so are most fund managers. Logically, a group of investors must beat the market. They are the institution investors besides the fund managers. We try to be as good as this group. It is achievable if you read the chapters on market timing, stock selection and strategies in this book. Most institutional investors do not time the market and we the retail investors have an advantage.

Do not act on the financial news. A lot of time, they’re contradictive, sometimes manipulative and always too late to be useful. Reading WSJ or Baron’s is more useful.

Cramer will tell you how the market is manipulated.


For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.

No comments:

Post a Comment