June 28, 2007
Shelley's Teaching Minute - Market Timing
DALBAR, Inc, is the nation’s foremost market research firm for the financial services industry. My favorite DALBAR study is one that focuses on market timers. It supports that although many people claim to make fortunes timing the market - these people are less successful than we have been led to believe.
The following is from the DALBAR website:
Examining the flows into and out of mutual funds for the last 20 years, the DALBAR study of investor behavior found that market timers in stock mutual funds lost 3.29% per year on average. Over a period when the S&P grew by 12.98%, the average investor earned only 3.51%.
This finding challenges the actions of regulators and the mutual fund industry to curb market timing. The victim of market timing is not the average investor, but the investor that tries this technique. The average investor actually benefits from the losses of market timers.
“This finding is consistent with the well known behavior of investors to brag about their gains, but remain silent about losses” said Lou Harvey, DALBAR President. “The occasional money makers create the illusion that all timers are winners all the time. The fact is that most timers lose money most often and this data now confirms it.”
What? Is research saying that market timing is a losing game? So speculation serves a purpose after all; it benefits the “average investor.” I find this very interesting. What are your conclusions?
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