Weekend reading: The average investor is apparently awful

What caught my eye this week.

I can’t really believe the chart below from JP Morgan that circulated around financial Twitter this week.

US investors are seemingly so prone to woefully bad attempts to time markets and other kinds of trading mishaps that they earned just 2.9% annualized over the past two decades:

Source: Alan Smith

That’s barely ahead of cash.

Hey, Mr Average Investor

Reading the small print reveals the graph is based on data fromDalbar Inc. That company’s work has foregrounded the so-called ‘behaviour gap’ for many years.

The behaviour gap describes how poor active choices by investors – such as trying to time markets, or to chase hot investments – means that most ultimately receive a far lower return than the broad asset class data implies.

The Dalbar study is also subject to regular debunking. I’m not even sure where we are with that right now. But JP Morgan apparently believes Dalbar is still credible.

Or maybe JP Morgan has something to sell. Unfortunately I don’t have access to more than that screenshot, so I can’t give you its official pitch. Perhaps it’s taken from Why You Should Entrust All Your Money To Us To Manage, Mortals, where it’s presented as evidence? Who knows.

What I can say is that if the average investor in conventional assets has really seen just a 2.9% return over 20 years, then you can see why so many of them chased rock JPGs and SPACs and GameStop at the height of the bull market in 2021.

I mean, what did they have to lose?

(Okay, apparently 2.9% a year.)

We can do better guys! Read my co-blogger The Accumulator and do as he does. Or do as our model passive portfolio does. That’s nearly 9% a year over the past 11 years, with just a handful of trades per quarter.

Or invest in an all-in-one index fund. Anything but 2.9% a year.

Have a great weekend all!

From Monevator

FX fees on investments, and how to crush them – Monevator

Mortgage risk: a checklist – Monevator

From the archive-ator: Are you richer than your kids, or poorer than your grandkids? – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

UK interest on debt payments hits record £7.6bn in May – Guardian

While inflation now at 9.1% as prices rise at fastest rate in 40 years… – BBC

…leading shoppers to set a £30 limit at the till and other behaviour changes – BBC

…and sinking UK consumer confidence to a record low – EuroNews

Payment Systems Regulator to investigate post-Brexit card fees – PSR

Bank of England withdraws mortgage affordability stress test – Reuters

Ray Dalio says stagflation is coming – Institutional Investor

Fear of death tends to decline with time, and other interesting findings on aging – AARP

Brexit gonna Brexit mini-special

A candid assessment of Brexit from a Leave voter, six years on – The Independent

The deafening silence over Brexit’s economic fallout [Search result]FT

LSE: Brexit hit UK’s competitiveness, reduced productivity, and lowered Brits’ real wages – CityAM

The Brexit dividend will be higher inflation risk for years to come – Bloomberg

Products and services

Cheapest mortgage deals revealed as rates continue to rise – Which

Nationwide revives 5% rate on [limited] current account balance, plus cash bribe – ThisIsMoney

Open an account with InvestEngine via our affiliate link and get £25 when you invest at least £100 (new customers only, T&Cs apply) – InvestEngine

100 98 days left to use your £20 and £50 banknotes – Bank of England

Ten-year fixed-rate mortgages now ‘incredible value’ – Guardian

Beware the new ATM scam where crooks can steal your card details in minutes – ThisIsMoney

Topsy-turvy homes for sale, in pictures – Guardian

Comment and opinion

Where does the wealth go when asset prices drop? – Noahpinion

Volatility in your pension isn’t the risk you should worry about – Financial Bodyguard

10 years of fake retirement later – Financial Samurai

Former Tory minister calls 10% rise in state pension ‘ludicrous’ – Guardian

So bad it’s good: three reasons to be bullish… – LPL Research

…and six more things that might go right – Validea

Rising interest rates are ending an era where the rich got much, much richer – The Atlantic

12 paradoxes of investing – Humble Dollar

How exposed is the UK as inflation spirals the cost of government borrowing? – Proactive Investors

Reverse-engineering the path to making $1 million a year – Banker on FIRE

10 years of leisure wrested from The Man – Simple Living in Somerset

Think outside the portfolio – Of Dollars and Data

Rental houses versus stock market investments – Mr Money Mustache

The billionaire investors bickering show is back [Podcast]All-In

Larry Swedroe: how to use and not abuse the Shiller CAPE ratio – TEBI

Bear markets are a test of investor emotions – Behavioural Investment

The eye of the storm – Young Money

Bond bust mini-special

When bonds do not hedge stocks [US but relevant]Morningstar

Has the bond crash done enough to make them attractive again? – Institutional Investor

Are TIPS broken? [US but relevant]Eversight Wealth

Crypt o’ crypto

Bitcoin whale Michael Saylor urges governments to regulate crypto’s “parade of horribles”Yahoo

First short Bitcoin ETF listed on the NYSE – Coindesk

Naughty corner: Active antics

Managing a SIPP in drawdown: 10-year update – DIY Investor UK

A summary of High Returns for Low Risk by Pim Van Vliet – Novel Investor

Should you buy Rio Tinto for its 17% dividend yield? – UK Dividend Investor

An interview with thoughtful active investor Guy Spier [Podcast] – I.C. via Youtube

And with Mohnish Pabrai, with lots on Charlie Munger [Podcast, forgot to link last week]TIP

In quarantine

Covid rates continue to rise; one in 35 had it last week – BBC

Polio virus detected in London sewage samples – BBC

How the monkeypox epidemic is likely to play out, in four graphs – The Conversation

Vaccine Damage Payment Scheme: the battle for compensation – BBC

Kindle book bargains

Find Your Voice: The Secret to Talking with Confidence by Caroline Goyder – £0.99 on Kindle

Ultralearning by Scott Young – £0.99 on Kindle

The Dealmaker: Lesson’s From a Life in Private Equity by Guy Hands – £0.99 on Kindle

Think Like A Rocket Scientist by Ozan Varol – £0.99 on Kindle

Environmental factors

A floating city in the Maldives begins to take shape – CNN

Wet Wipe island has “changed the course of the Thames” – via Twitter

UK chemicals plant ready to start carbon capture rollout – Guardian

Controversy grows over whether Mars samples endanger Earth – Scientific American

French and Belgians eating wild frogs to extinction – Guardian

Off our beat

Inside the secret, often bizarre world that decides what porn you see [Search result]FT

A brief history of the shipping container – Hakai Magazine

Experience: I lost my eyesight overnight – Guardian

Amazon readies Alexa to mimic a deceased loved one’s voice – Gizmodo

The summer of a thousand goodbyes – Finding Joy

‘Mid-century millennial’: the ubiquitous look of a generation’s homes – Guardian

Over half of Africa’s young adults want to emigrate – Quartz Africa

And finally…

“The more we tie our happiness to things that we cannot control, the more we subject ourselves to the negative volatility of the outside world. Therefore, we need to be mindful in setting our goals.”
– Vitaliy Katsenelson, Soul in the Game

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Average is awful, apparently, plus the rest of the week’s good reads…
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