Clear picture - All investors believe they buy low and sell high but the numbers say otherwise
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.
Fund Manager, Equity Value
I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
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