The market is full of people who, at an individual level, will claim they have the expertise, knowledge and understanding to be able to time the market well so that they invest your money when assets are cheap and take your money out again when they are expensive. They will, in other words, confidently tell you they “buy low, sell high” – but the following chart suggest otherwise.
Source: DataStream. IMA
Using data from the investment management association and DataStream, analysts at Numis have plotted the sales of open-ended retail funds over the last five years against the performance of the FTSE 100 index during that time.
Now, perhaps it really is the case that 99%, say, of investors are as good at timing the market as they maintain. Perhaps the other 1% just happens to be so bad at investing yet control so much money that it skews the numbers and obscures the fact the majority of investors are in fact all geniuses. Or perhaps the market is collectively delusional and not quite as good as it thought.
Or perhaps it is not delusion but overconfidence – there are plenty of behavioural biases we have discussed many times on The Value Perspective that could explain this chart. Whatever the explanation, however, it illustrates very starkly that collectively and on average, when it comes to investing, at least in open-ended retail funds, investors’ emotions – their ‘animal spirits’ – hold sway.