The Dalbar Study: The Brutal Truth on Why You are a Poor Investor

The Dalbar Study: The Brutal Truth on Why You are a Poor Investor

| January 25, 2022
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NEWS FLASH:  You have strong emotions about money!

While that may not be earth shattering news to you, what is harder to swallow is the fact that your emotions sabotage your investment performance.  Too many of you believe that performance is the advisor's problem, not one of their own creation.

Well, that is just flat wrong.  You are not a good investor.  Period.  Without help, from an advisor who understands as much about emotions as money and markets, you won't do very well in the world of investing.  That is not opinion, that is a fact.  For years, I have followed and forwarded to client the results of the "Dalbar Study".  Here is a link to the 2016 version, aptly titled in very strong words:

Dalbar 2016, Yes You Still Suck at Investing

Read it.  In completely bold and clear language, it puts THE UNADVISED INVESTOR clearly in the bullseye of why their portfolio doesn't do very well over long periods of time.  It also give clear instructions to ADVISORS as to how to prevent the problem in the first place.  The Dalbar Study has caused me to make certain changes to the way we run Solitude.  Keep them in mind as you review the study:

1) Clients are strongly discouraged to EVER buy and sell the assets in managed accounts.  They must stick to the plan, and trust US to ACT IF NECESSARY during any crisis, which we rarely need to do in dramatic fashion. This ability to stand fast on our plans has value far exceeding our cost, and generally can exceed 3% per year in performance according to DalBar.  

2) As we are professionals, we are able to make the RIGHT changes not the WRONG ones when things go down.  We buy down markets (or rebalance), when you would likely sell, for instance.

3) When fear hits, we counsel.  Assuring clients unequivocally that they will be fine over time if we do LESS not MORE is helpful.  You think you won't need the handholding.  You will. Boxing Champ Mike Tyson aptly observed "Everyone has a plan, until they get punched in the mouth!".  We are ready for the hit, but more importantly, get YOU ready so that first blast doesn't undo all of our prep for the big fight.  In boxing AND investing, only a fool steps into the ring planning to avoid all of the big hits.  Investing can be a tough and unforgiving process, but rewards the disciplined participants who can fight though the hard blows and stick to the coach's plan.   

4) We remind all clients that portfolios will UNDERPERFORM market indices over the long term.  This is done ON PURPOSE as the clients cannot remotely stomach MARKET LEVEL RISK. The study also clearly states why it is nearly impossible to replicate the market return - even if we wanted to try.  We also remind them that the slower performance is still fast enough to achieve the goals in the time frame available - with a smoother ride.

Enjoy the review of this study.  Pass it along to your friends. It is the clearest reason to hire an advisor - the advice will pay for itself.  Like the old joke of two people being chased by a lion.  As one dons tennis shoes, the other reminds him that he cannot outrun the lion.  The wise response: I don't need to - I only need to outrun you!   Any decent advisor should be able to easily best the 3% return of the amateur merely by having and exploiting a disciplined plan.

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