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View Poll Results: How much of the Return available from the stock market is realized by the average investor?
95% 3 6.52%
80% 10 21.74%
50% 11 23.91%
30% 8 17.39%
10% 14 30.43%
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Average Investor Returns
Old 08-30-2006, 02:07 PM   #1
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Average Investor Returns

It is one thing to look at historical market performance data, but what do you believe is actually achieved by the average stock investor.* *First person opinions are sought but referenced expert sources are particularly welcome and appreciated.
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Re: Average Investor Returns
Old 08-30-2006, 02:23 PM   #2
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Re: Average Investor Returns

I am aware that you have an axe to grind, but maybe you could clarify: are you asking what potential return any individual investor could get (i.e. anyone can go to VG or Fido and get cheap index funds), or are you talking about the average of all investors(including the fools who frenetically trade, buy load funds, listen to full service brokers, etc.)?
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Re: Average Investor Returns
Old 08-30-2006, 02:33 PM   #3
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Re: Average Investor Returns

I'm not sure how to answer the question as worded, but the studies of interest include:

the Dalbar Study

and

Barber and Odean
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Re: Average Investor Returns
Old 08-30-2006, 02:49 PM   #4
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Re: Average Investor Returns

Quote:
Originally Posted by brewer12345
I am aware that you have an axe to grind, but maybe you could clarify: are you asking what potential return any individual investor could get (i.e. anyone can go to VG or Fido and get cheap index funds), or are you talking about the average of all investors(including the fools who frenetically trade, buy load funds, listen to full service brokers, etc.)?
I am interested only in actual returns (as opposed to theoretical) achieved by real world investors, if that type of information is even available.* I imagine that would represent a cross section of equities investors including those who may from time to time engage in activities that are not in their best interests as well as those who have superior stock market investing investing skills.* I am sure that the equity investors on this forum do somewhat better than average since they have taken the time to educate themselves and obviously are continuing to invest significant amounts of time and study in order to become even better investors.* It is true that I don't invest in equities myself at the present time for a variety of reasons but I don't see why you should be threatened by this fact.* I am also investing the time to become a better investor and money manager.* I have found I can learn more from those with open minds who present reasoned opinion and factual data.* I hope this board is that kind of place.* I don't believe I have made any representations on this board either for or against equities. . . . . only that at the present time that I personally do not invest in them.
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Re: Average Investor Returns
Old 08-30-2006, 02:59 PM   #5
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Re: Average Investor Returns

Quote:
Originally Posted by wab
I'm not sure how to answer the question as worded, but the studies of interest include:

the Dalbar Study

and

Barber and Odean
Thanks for the information.* It is appreciated.
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Re: Average Investor Returns
Old 08-30-2006, 03:14 PM   #6
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Re: Average Investor Returns

Arnott, Casscells “Demographics and capital market returns” paper
Dichev “What were stock investors actual historical returns?” paper
Dimson, Marsh, Staunton “Irrational optimism” paper
Frazzini “Dumb money: mutual fund flows and the cross-section of stock returns” paper
Jorion “Long term risks of global stock markets” paper
Jorion, Goetzmann “Global stock markets of the 20th century” paper




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Re: Average Investor Returns
Old 08-30-2006, 03:19 PM   #7
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Re: Average Investor Returns

I think most of these are online through www.scholar.google.com
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Re: Average Investor Returns
Old 08-30-2006, 03:21 PM   #8
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Re: Average Investor Returns

Usually normal guys give up trading in three years. Got burned.


brewer12345, your fleet is doing good. DRYS,....

Take a look at CLL.TO , a Canadian oil sand stock. It is a good long term investment candidate.
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Re: Average Investor Returns
Old 08-30-2006, 03:26 PM   #9
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Re: Average Investor Returns

Quote:
Originally Posted by hellbender
I am interested only in actual returns (as opposed to theoretical) achieved by real world investors, if that type of information is even available.*

I imagine that would represent a cross section of equities investors including those who may from time to time engage in activities that are not in their best interests as well as those who have superior stock market investing investing skills.* I am sure that the equity investors on this forum do somewhat better than average since they have taken the time to educate themselves and obviously are continuing to invest significant amounts of time and study in order to become even better investors.* It is true that I don't invest in equities myself at the present time for a variety of reasons but I don't see why you should be threatened by this fact.* I am also investing the time to become a better investor and money manager.* I have found I can learn more from those with open minds who present reasoned opinion and factual data.* I hope this board is that kind of place.* I don't believe I have made any representations on this board either for or against equities. . . . . only that at the present time that I personally do not invest in them.
Quote:
Originally Posted by hellbender
How much of the Return available from the stock market is realized by the average investor?
It is one thing to look at historical market performance data, but what do you believe is actually achieved by the average stock investor.* *First person opinions are sought but referenced expert sources are particularly welcome and appreciated.
Hunh-- those seem like two completely different sets of questions to me.

Part of the board's reaction to this type of poll/question comes from a previous poster, JohnGalt (also JG & MrGalt2U) who quite defiantly (and repetitively) announced his aversion to equities. *Other comments of his gave one the impression that he was short of assets, as well as a host of other contradictory statements that led one to believe that a former accountant & captain of industry should be comfortable with equities. *Enough inconsistencies piled up over his 7000 posts to invalidate his credibility (or to at least render his statements incredible), including his strident objections to stocks.

I think people also use the word "risk" without a proper context-- volatility risk, sector risk, single-stock risk, loss-of-principal risk, inflation risk, and so on. *So avoiding stocks because they're "risky" doesn't exactly clarify the issue.
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Re: Average Investor Returns
Old 08-30-2006, 03:43 PM   #10
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Re: Average Investor Returns

Quote:
Originally Posted by hellbender
I am interested only in actual returns (as opposed to theoretical) achieved by real world investors, if that type of information is even available.* I imagine that would represent a cross section of equities investors including those who may from time to time engage in activities that are not in their best interests as well as those who have superior stock market investing investing skills.* I am sure that the equity investors on this forum do somewhat better than average since they have taken the time to educate themselves and obviously are continuing to invest significant amounts of time and study in order to become even better investors.* It is true that I don't invest in equities myself at the present time for a variety of reasons but I don't see why you should be threatened by this fact.* I am also investing the time to become a better investor and money manager.* I have found I can learn more from those with open minds who present reasoned opinion and factual data.* I hope this board is that kind of place.* I don't believe I have made any representations on this board either for or against equities. . . . . only that at the present time that I personally do not invest in them.
OK, well, whatever. I see the Dalbar study quoted frequently, although it does have its problems. I take it as an object lesson. In an unfortunately large number of cases, people manage to shoot themselves in the foot on this stuff. It doesn't have to be harder than plunking some money in a balanced fund that doesn't charge too much, but most people are not even educated enough to figure that out.

HB, IIRC, you have a large pension that pretty much covers everything, plus a significant amount invested in RE. Do you have a risk budget/risk tolerance in mind for your portfolio? I know you have little interest in taking undue risk, which I think is wise. Dabble in bonds at all?
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Re: Average Investor Returns
Old 08-30-2006, 04:00 PM   #11
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Re: Average Investor Returns

In "The Relentless Rules of Humble Arithmetic" http://www.vanguard.com/bogle_site/sp20060101.htm
John Bogle (founder of Vanguard) lays out the real returns to the mutual fund owner after backing out the various expenses, overheads, etc for the various fund companies - Table 4 and 5 show Vanguard to return 76% of the underlying stock market value to the mutual fund owner - the highest return was Dodge & Cox (98%) and lowest was JP Morgan* (32%)

Very interesting presentation that, I think, is at least a partial answer to your question.

JohnP
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Re: Average Investor Returns
Old 08-30-2006, 04:17 PM   #12
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Re: Average Investor Returns

Quote:
Originally Posted by brewer12345


HB, IIRC, you have a large pension that pretty much covers everything, plus a significant amount invested in RE.* Do you have a risk budget/risk tolerance in mind for your portfolio?* I know you* have little interest in taking undue risk, which I think is wise.* Dabble in bonds at all?
I guess I don't since I had to look up the term "risk budget"* I found this definition:

"Risk Budget
Output from one of a number of quantitative models used by asset or liability managers. The models are designed to control the aggregate risk of the asset or liability portfolio and to allocate acceptance of risk in a way that will optimize risk acceptance to give the portfolio the maximum return possible on the risks accepted. Useful risk budgeting models will incorporate value at risk assignments that have been converted from efficient portfolio allocations. These value at risk assignments may be allocated across asset classes, investment strategies, investment managers, or risk factors and may be defined in either absolute or relative terms. An appropriate risk budget should be mean-variance efficient in either absolute or relative dimensions. "

Well that is one mouthful of a definition.* *After reading it, I fairly certain I don't have one.* *Frankly, the above sounds like something a money manager would say to his client in an attempt to to convince him that he knows what he is doing and will make him/her a lot of money.* The only quantitative model I use is a fairly involved spreadsheet which I designed and taylored for my own specific situation. Using absurdly conservative assumptions for inflation, medical inflation, investment performance, long term care needs, etc. the model says I will be just fine well beyond any reasonable life expectancy.

I don't own individual bonds.* I am mostly in cash (CDs, short term bond funds, G-Fund), investment (income producing) real estate and notes conservatively secured by real estate that I wouldn't mind owning in the event of default.
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Re: Average Investor Returns
Old 08-30-2006, 04:21 PM   #13
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Re: Average Investor Returns

Quote:
Originally Posted by hellbender
I don't own individual bonds.* I am mostly in cash (CDs, short term bond funds, G-Fund), investment (income producing) real estate and notes conservatively secured by real estate that I wouldn't mind owning in the event of default.
As long as we're beating inflation and sleeping at night, it probably doesn't matter what assets we invest in.
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Re: Average Investor Returns
Old 08-30-2006, 04:29 PM   #14
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Re: Average Investor Returns

Quote:
Originally Posted by JohnP
In "The Relentless Rules of Humble Arithmetic" http://www.vanguard.com/bogle_site/sp20060406.htm
John Bogle (founder of Vanguard) lays out the real returns to the mutual fund owner after backing out the various expenses, overheads, etc for the various fund companies - Table 4 and 5 show Vanguard to return 76% of the underlying stock market value to the mutual fund owner - the highest return was Dodge & Cox (98%) and lowest was JP Morgan* (32%)

Very interesting presentation that, I think, is at least a partial answer to your question.

JohnP
Thanks for the link.* I really respect J. Bogle.* * In this paper from last year:
* "The Uncanny Ability to Recognize the Obvious"
http://johncbogle.com/speeches/JCB_F...ncbogle.com%22* **

Bogle states:

"But largely because of poor timing and poor fund selection, the average fund
investor has lagged by another 3 percentage points. Result: in this grand era for investing, the
average investor has captured but 27 percent of the market’s compounded return. Clearly, as Mr.
Buffett warns, the principal enemies of equity investors are expenses and emotions."*
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Re: Average Investor Returns
Old 08-30-2006, 05:57 PM   #15
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Re: Average Investor Returns

Quote:
Originally Posted by hellbender
Result: in this grand era for investing, the
average investor has captured but 27 percent of the market’s compounded return.
I have a hard time understanding what is what with all of this expenses discussion. DW and I have a significant amount of money tied up in load funds from years ago and thru DW's 401K and retirement plans. Funds like Dodge and Cox and Calamos. Trying to figure out our individual ROI is a nightmare due to DCAing in through payroll deductions so I gave up trying to figure that out. When I look at Morningstar info on total return year by year it looks like we have done very well on most of the funds we hold. If I compare the numbers to any of the no-load index funds we appear to be fine. For this reason I don't see any strong reason to move the funds that we are currently free to move over to indexes. The same thinking would likely apply when DW retires and her funds are freed up.

Is there something significant I am missing, or is Morningstar's total return data a valid yardstick to base our evaluations on (at least in the rear view mirror)?
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Re: Average Investor Returns
Old 08-30-2006, 08:05 PM   #16
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Re: Average Investor Returns

Most investors use the "I can't stand it" method of market timing. When it goes down, they reach the point when they can't stand it, and they sell. When it goes up, they can't stand hearing how their friends are making so much and they buy. Buy high, sell low.

Also, do we include the people who have their money in a 2% interest passbook account?
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Re: Average Investor Returns
Old 08-30-2006, 09:31 PM   #17
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Re: Average Investor Returns

Donheff, Dodge & Cox is a no-load fund family.
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Re: Average Investor Returns
Old 08-30-2006, 09:36 PM   #18
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Re: Average Investor Returns

I am still not sure what the point of this thread is....I dont see a lot of "average" investors on this board*

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Re: Average Investor Returns
Old 08-30-2006, 10:14 PM   #19
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Re: Average Investor Returns

I was including all folks in my answer. Many of them do not invest in the stock market ever, but are content to spend their money as they get it or to invest at their local bank in a savings account.

Quote:
Originally Posted by donheff
Trying to figure out our individual ROI is a nightmare due to DCAing in through payroll deductions so I gave up trying to figure that out.
I think you need to use software like Quicken or MSMoney or the XIRR function of excel to get your ROI. You must enter every transaction accurately though (date, $, number of shares). There is no real shortcut if you want a valid ROI.
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Re: Average Investor Returns
Old 08-30-2006, 10:15 PM   #20
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Re: Average Investor Returns

Short term, stocks are mostly a zero-sum game. For all the people losing money, somebody else must be gaining it. Long term stock tend to grow, the indexes should track the total value of the stock market.
Since you said “average” investor rather than the “median” investor, I would think that the average investor would track the indexes which is roughly 10% per year.

For me personally, I have done about 8% + 2% from dividends over my 19 years of investing.
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