Could You Outperform “Shockingly Badly”

A forerunner of this article ran eight years ago. I doubt the facts would have changed if the data were current. Individual investors tend to have an enemy. In his comic strip Pogo, Walt Kelly pointed out, “We have seen the enemy, and he is us.” That’s the point

Blackrock claims that over the 20 years ended December 2013, the typical individual investor has done “shockingly” badly. 

According to them, of 44 asset classes considered, the typical investor beat inflation and two other categories.

asset class returns vs abg investor MW-CQ057_asset__MG_20140813073943

Buy and hold any of 40 or so classes was superior, in most cases very superior.

If you create a histogram of index returns over long periods, you will find that the outcome is not quite a normal distribution. (Bell Curve)  You’ll find a higher than expected probability on both ends. The bump on the downside is fear. People do not deal well with fear. They tend to sell and go away. Prices fall more and collect up more of the emotional beings in the morass.

The bump on the plus side is greed. Time to get in. Easy money. This bump leads to buying at the highs. Not such a good tactic.

People make poor choices when their decisions are emotionally driven, and it shows up in the market graphs.

Declines are common.

Even good years have periods of decline.

You can read more here.

If you read a little further into the article, you will see that the range of returns within a year is wide. The average decline in the 40 years studied was 14%. That’s enough to scare many people.

Some things to think about:

  1. Everyone thinks they are better than average. (mathematically impossible)
  2. Short-term trading is a competition with other investors. There are far more emotional factors than in buy and hold. More variables tend to create error-prone situations.
  3. Individuals become bored.
  4. Every investor must have a reason for investing. Something about what the money will do, not what amount it may become. The organizing principle. The prime directive.
  5. Every investor needs a conscience. Someone who can say, “You are making a decision disconnected from your purpose.”
  6. Every investor needs a cheerleader. Someone who can keep them balanced.
  7. Every investor needs a mentor. Provide direction in learning, assessing and vision.

When people lose track of the purpose or the reality of the market, they do poorly. Some things are not that hard. Shockingly badly is not a hard target to beat. Pete Rose commentated about a player batting less than .200, “C’mon Ray Charles could bat .200” Narrow your track is usually enough to get average results.

Maybe a helper is in order.

An experienced advisor can provide helpful service in areas 5, 6, and 7 above.

I vaguely recall a Harvard study from the ’60s or ’70s that found that of individual traders over time, 1% made money, 2% broke even, and the other 97% lost money. Often all of it. Emotion has more to do with those losses than does inadequate skill.

Despite the critics who believe investment management fees are not worth their price, you might find that paying a fee could be a good investment. I doubt it would be a “shockingly bad” decision.

The bits to take away

You would think a juvenile monkey with a handful of darts could beat more than two asset classes.

If someone has updated information like the Blackrock example, I’d like to see it.


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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don@moneyfyi.com.

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