Why most investors lose money in the market!

Good piece (thanks Attila) on the negative results ‘enjoyed’ by investors over the past 12 years since this secular bear began.  To wit:

“I heard a Wall Street executive this morning expressing puzzlement as to why investors have been pulling money out of stock mutual funds for several years and continue to do so “missing out on this tremendous rally when they should have been getting back in.”

Well, pal, that’s just the problem. How can they be getting back in if you never told them when to get out? They’ve stayed in until they can’t stand the pain anymore.

This has been a tremendous rally, and tremendous bull market since the low in 2009 only for market-timers.

But the vast majority of investors have their money in their IRA’s and 401K’s and independently in managed mutual funds, and pay only casual and glancing attention to the market.

They have trusted long-time Wall Street’s advice that the market can’t be timed, and they need to simply buy what they are sold and hold through whatever comes along “because the market always comes back.”

For them, it has not been a tremendous time. Even if their ‘diversified’ portfolios matched the benchmark S&P 500 index, especially after fees, they have been losing money for 12 years, not even adjusting for the additional loss from 12 years of inflation…”

Read the whole piece here.

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5 Responses to Why most investors lose money in the market!

  1. Chris says:

    Yes, a good article.

    The long-term S&P 500 chart on that page shows an interesting head-and-shoulders formation in progress.

    Many technical analysts use a rule of thumb that the move after the completion of a head-and-shoulders will be roughly the same distance between the top and the bottom of the “head” part of the formation.

    If that were to happen here, the S&P 500 would go negative. Not exactly encouraging. Better hope we make a new all-time high here.

  2. Good piece. It’s a very common sentiment these days. The average retail investor has lost faith in the investment industry, which is not surprising in a bear market. The angst among the investment community is palpable.

    The truth that most of the investment community does not want you to know is that for the buy-and-hold approach nothing is more important than fortuitous timing. And timing is mainly a function of your age. Therefore, when you were born may be the single greatest factor in determining your long-term success in the markets (including real estate).

    Those lucky enough to be investing for retirement during a bonafide bull, such as ’82 to 2000, enjoy real, wealth-building gains. While those whose birthdays dictate that their prime investment years happened to span periods such as ’66 to ’82, or 2000 to now, lose wealth to inflation, fees and taxes while stocks languish.

    “The fault, dear Brutus, is not in ourselves, but in our stars.”

  3. Barry says:

    When I entrusted money to the bank – long before the internet helped to empower my own investing style – I phoned and told my TD broker to sell a bond which had fallen to 70 cents on the dollar. He said to come round for “a talk” and there were two of them who strongly encouraged me NOT to sell … well it sank to 29 cents, the company was bought by another, the brokers confidently told me what a great deal it was and I lost $30,000.

    I swore I would never, never allow that to happen to me again. I was given a royal boot in the butt and with vigor I started out on a new path. Since then as a DIY investor I’ve had very few bad moments, some extraordinary lucky ones and in aggregate slowly growing wealth.

  4. aliencaffeine says:

    We have now completed three trading days since the market signaled a new uptrend has begun. NOTE: The ‘call’ was from Investors Business Daily. I believe this one is to be heavily questioned as it was generated by Apples earnings and we all know Apple is a big component of several major market indexes.

    This is from todays IBD: The markets action has been encouraging since the Wed follow-thru day, ALTHOUGH THE 1.4% GAIN WASN’T EXACTLY IMPRESSIVE. For a rally to work (ie for traders to make their bread) two factors are necessary. HESITANT MONEY must start coming off the sidelines. And investors (traders) MUST BE CONTENT either to hold their shares tightly rather than sell into strength, or to ROTATE THE MONEY into NEW POSITIONS.

    Its too early to tell if THIS RALLY (attempt w/o AAPL) will work.

    So buyer beware. The sharks are still out there. Don’t let anyone tell you otherwise.

  5. Andrew says:

    This post is interesting in light of what I just read. Its Jeremy Grantham’s quarterly letter and it is largely about career risk in the investment profession. There is a bias toward being long equities which is shocking. I urge anyone who has an advisor read it:

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