Wednesday, July 8, 2009

Wall Street Snake Oil

Investors Find No Shelter
DALBAR Study Reveals Carnage for Equity, Bond and Asset Allocation Shareholders

Boston, MA -(March 9, 2009) By all measures, 2008 was the year that wiped out wealth-and DALBAR's Quantitative Analysis of Investor Behavior (QAIB) is no exception. In its 15th annual study of mutual fund investor behavior, DALBAR discovered that equity, fixed income and asset allocation fund investors experienced average annual losses for all time periods examined except the longest (20-year) time frame. And even those positive returns did not keep pace with the average inflation rate.

"The dramatic events that continue to plague our financial markets have provoked panic, which exacerbates the ongoing carnage," said Lou Harvey, president of DALBAR. "For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are, in fact, theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments," he said.

Among the studies findings:
  • For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87%, 0.77% and 1.67%, respectively. The inflation rate averaged 2.89% over that same time period.

  • Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.

  • Bond fund investors lost 11.7% last year, versus a gain of 5.2% for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.

  • With an annual loss of 30% last year, asset allocation fund investors fared better than equity fund investors.


Rules for the owner class:
  • Risk is easy with other people's money.
  • Moral imperative: consumers are chumps who should be parted from their money.
  • Everyone else is a consumer of what you sell - whatever "fabulous" thing that is.
  • When all else fails, get the state to support your thievery with statutes and subsidies. You're not a common crook, after all.