Charts and Graphs that make you go "Hmmm"

[ladelfina]

Leafing just yesterday through the free Schwab magazine (I wish they would save money and not send it me).. I came across this inexplicable chart:
http://oninvesting.texterity.com/oninvesting/2007fall/?pg=12

Which claims annualized return 1986-2006 for "equity mutual fund investors" as follows:

"Average investor" = 4%
"Average systematic investor" = 6%
"Average market timer" = 2%
CPI = 3%; S&P500 index = 12%.

[This is all in the context of denouncing market timers, BTW, but bear with me..]


Source is DALBAR (www.dalbarinc.com) but their reports are for sale so I couldn't check. -- I know the whole routine about how most funds lag the S&P, but I had no idea the magnitude of the figure -- 4% return seems insanely low!

Then today I found this:
http://johncbogle.com/wordpress/200...al-funds-the-wall-street-journal-july-8-2003/

which also references Dalbar.. does anyone have more insight into how this "Dalbar" number is figured? Even if the market timers do half as well as "average", how can it be possible that people switching in and out in a random, blundering way is to blame for a six-to-seven-fold discrepancy between fund performance and "avg. investor" performance?

• Sometimes you will find something of value in fluff publications
• It's funny the Schwab chart, intending to prove something else, gives the lie to arguments for equity-fund investing made on the other pages of their same magazine.
• I may become a "Boglehead" (though I am not sure of exactly what that means nor all the ramifications thereof)!

 

[Nords]

Leafing just yesterday through the free Schwab magazine (I wish they would save money and not send it me)..

Well, you know it's not free... it's paid for by Schwab's grateful [-]marketing[/-] customers!

I know the whole routine about how most funds lag the S&P, but I had no idea the magnitude of the figure -- 4% return seems insanely low!
Then today I found this:
The Bogle eBlog » Blog Archive » The Emperor's New Mutual Funds
which also references Dalbar.. does anyone have more insight into how this "Dalbar" number is figured? Even if the market timers do half as well as "average", how can it be possible that people switching in and out in a random, blundering way is to blame for a six-to-seven-fold discrepancy between fund performance and "avg. investor" performance?

I think they either studied the money flowing through various mutual funds or else they actually aggregated the data for cash flows into/out of individual investor's accounts. Peter Lynch alluded to a similar issue with Fidelity Magellan investors during his years.

Either way there's a lot of selling at the bottom, buying at the top, chasing last year's winners, paying a lot of short-term cap gains taxes... you name it.

Here's one of many summaries of the Dalbar & Bogle refrains:
Grubman Financial Consulting - The Average Investor's Returns

BTW Schwab's reputation took a big hit in 2003-2004 for their "new" stock-ranking system which suggested that their shareholders should dump their "F"-graded stocks and only buy "A"-graded stocks. You can guess which stocks outperformed by a wide range over the following 1-2 years of recovery.

[*] I may become a "Boglehead" (though I am not sure of exactly what that means nor all the ramifications thereof)!

You're going to have to lurk the Vanguard Diehards and Bogleheads discussion boards before wearing that moniker proudly... Taylor, Mel, & Michael have also written a book.

Guide to the Vanguard Diehards Forums
(M* has apparently changed their forum software again and it's annoying a lot of the long-time posters. Larry Swedroe is now only posting at the Bogleheads forum.)
Amazon.com: The Bogleheads' Guide to Investing: Books: Taylor Larimore,Mel Lindauer,Michael LeBoeuf,John C. Bogle

 

[justin]

I may be making this all up, but Bogle's Common Sense on Mutual Funds discussed poor actual performance of mutual fund investors (ie - s&p returns > avg mutual fund return > avg mutual fund investor return).

 

[ladelfina]

Tnx for Grubman link; v. innerestin. I guess that there's market-timing that's not consciously market-timing (along with all the other stuff you mentioned), but whatever it is, it's alarming! (But I guess better for us if we don't fall prey to it.)

Yeah, I'm aware that Schwab wants transactions (just like Vanguard, for all its 'purity' wants mgmt. fees). Makes me feel less terrified about my 'risky' mostly-stock holdings. I only seem to screw up a little when I buy, and more when I sell! But when I hold everything seems apparently copacetic... ;-) La la la la la...

 

[MasterBlaster]

Well here goes...

H'mmm